Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
o YES ý NO

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
o YES ý NO

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. ý YES o NO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). ý YES o NO

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this
chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer o

Non-Accelerated filer o(Do not check if a
smaller reporting company)

Smaller reporting company ý

Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes o No ý

The aggregate market value of the Registrant's common stock held by non-affiliates of the Registrant as of September 30, 2011 was approximately
$19,675,000 based on the closing price of the common stock as reported on the NASDAQ Global Select Market on such date.

The
Registrant had 16,190,408 shares of its common stock outstanding on June 20, 2012.

Documents Incorporated by Reference

The information required in response to Part III of Form 10-K will be filed by amendment or incorporated by reference from the
Registrant's Definitive Proxy Statement to be filed with the Securities and Exchange Commission within 120 days of March 31, 2012 with respect to the Registrant's 2012 Annual Meeting of
Shareholders.

This Annual Report on Form 10-K of New Frontier Media, Inc. and its consolidated subsidiaries, hereinafter
identified as we, us, the Company or the Registrant, and the information incorporated by reference includes forward-looking statements within the meaning of the safe harbor provisions of
Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements
regarding trend analysis and our expected financial position and operating results, our business strategy, our financing plans and the outcome of contingencies are forward-looking statements.
Forward-looking statements are also identified by the words "believe," "project," "expect," "anticipate," "estimate," "intend," "strategy," "plan," "may," "should," "could," "will," "would," and
similar expressions or the negative of these terms or other comparable terminology. The forward-looking statements are subject to risks and uncertainties that could cause
actual results to differ materially from those set forth or implied by any forward-looking statements. Some of these risks are detailed in Part I, Item 1A, Risk Factors and elsewhere in
this Form 10-K.

Readers
are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update or
revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Registered
trademarks identified herein that are not expressly stated to be our property are the property of the respective owners of such marks.

ITEM 1. BUSINESS.

DESCRIPTION OF BUSINESS

Incorporated in Colorado on February 23, 1998, we are a provider of transactional television services and a distributor of
general motion picture entertainment. Our key customers include large cable and satellite operators, premium movie channel providers, movie aggregators and distributors, and major Hollywood studios.
We distribute content worldwide. Our three principal businesses are reflected in the Transactional TV, Film Production and Direct-to-Consumer operating segments. Our
Transactional TV segment distributes adult content to cable and satellite operators who then distribute the content to retail consumers via video-on-demand (VOD) and
pay-per-view (PPV) technology. We earn revenue by receiving a percentage of the retail price paid by consumers to purchase our content on our customers' VOD and PPV platforms.
The Transactional TV segment represents our largest operating segment based on revenue and assets and has historically been our most profitable segment; however, the segment has experienced declining
operating income due to competition from free and low-cost websites and the continued global economic downturn. These factors are discussed in more detail below. The Film Production
segment generates revenue through the distribution of mainstream and erotic films to large cable and satellite operators, premium movie channel providers, and other content distributors. This segment
also periodically provides contract film production services to major Hollywood studios (producer-for-hire arrangements). The Film Production segment incurred an operating loss
in fiscal year 2011 primarily due to impairment charges. Our Direct-to-Consumer segment primarily generates revenue from membership fees earned through the distribution of adult content to consumer
websites. The
Direct-to-Consumer segment has historically incurred operating losses and is expected to continue to incur operating losses for the foreseeable future. Our Corporate
Administration segment includes all costs associated with the operation of the public holding company, New Frontier Media, Inc.

Revenue
from the Transactional TV segment has declined during each of the two fiscal years ended March 31, 2012. We believe the increase in availability of free and
low-cost internet websites in combination with the continued global economic downturn has caused historical consumers and potential new consumers to view content through free and
low-cost internet websites rather than through our television VOD and PPV services. Additionally, we believe consumers have generally reduced their spending on our content or eliminated
their acquisition of our content in response to the challenging economic conditions. In response to these declines in revenue, we have invested in efforts to stabilize revenue such as developing new
and unique content packages as well as investing in sales and support staff to execute our international growth strategy. Despite these efforts, the performance of the Transactional TV segment in
fiscal year 2012 was lower than expected, and we adjusted downward our five year forecast for the segment. As a result of the lower than expected fiscal year 2012 performance and downward adjustment
to the five year forecast, we incurred a goodwill impairment charge of approximately $3.7 million for the segment. See additional information on the charges within the Transactional TV segment
discussions below.

The
Film Production segment has experienced challenging market conditions in prior fiscal years and as a result, recorded film cost impairment charges in fiscal year 2011 of
approximately $2.2 million as well as an increase in the allowance for unrecoverable accounts of $0.8 million to reserve for certain recoupable costs and producer advances that were not
expected to be recovered. Despite incurring a charge to increase the allowance for unrecoverable accounts of $0.6 million and a film cost impairment charge of $0.2 million, the Film Production
segment generated operating income in fiscal year 2012 primarily due to aggressive cost reduction efforts. We are optimistic that the Film Production segment will generate operating income in future
periods.

Film Productionproduces and distributes mainstream and erotic films. These films are distributed on U.S. and
international premium channels, PPV channels and VOD systems across a range of cable and satellite distribution platforms. The Film Production segment also acts as a sales agent for a full range of
independently produced motion pictures and distributes the content to markets around the world. Additionally, this segment periodically provides producer-for-hire services to
major Hollywood studios.



Direct-to-Consumeraggregates and resells adult content via the internet. The
Direct-to-Consumer segment sells content to subscribers through its consumer websites.



Corporate Administrationincludes all costs associated with the operation of the public holding company, New
Frontier Media, Inc., which are not directly allocable to the Transactional TV, Film Production, or Direct-to-Consumer segments.

Financial
information about our segments is included in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, and
Note 11Segment and Geographic Information within the Notes to Consolidated Financial Statements.

Transactional TV Segment

The Transactional TV segment generated the majority of its revenue in fiscal year 2012 through the distribution of adult programming on
domestic VOD platforms. VOD distribution primarily occurs through cable multiple system operators, or MSOs, and telephone company operators that also provide

television
services. VOD presents viewers with layered menus. These menus allow users to interactively select a movie and then view it immediately or at a later time once the transaction has been
executed. We believe consumers prefer VOD services relative to our PPV offering because of the variety of content available through VOD platforms and because of the flexibility VOD services provide in
viewing times. VOD services are primarily distributed by our cable MSO customers and are distributed on a limited basis by our DBS customers due to the one-way nature of satellite
distribution systems (i.e., DBS customers distribute programming to consumers via satellite but cannot receive consumer communications via satellite).

Our
Transactional TV segment also distributes adult programming to cable and satellite television companies through PPV channels. PPV provides consumers access to a timed block of
programmingfor example, a movie or an eventfor a fee payable to the cable or satellite providers. Our PPV programming is offered on channels that are available to viewers
through the same electronic program guides that display basic cable channels. Some of our distributors also offer our Transactional TV segment's channels on a monthly subscription basis, and
subscription revenue represented approximately 23% and 18% of the total PPV revenue in fiscal years 2012 and 2011, respectively.

We
earn revenue in our Transactional TV segment by receiving a percentage (sometimes referred to as a split) of the total retail purchase price paid by consumers to purchase our content
on customers' VOD and PPV platforms. Our Transactional TV segment's products have historically been sold by our customers for a retail price of between $9.95 and $14.99 for a single movie or event as
determined by our customers with input from us. During fiscal year 2012, our customers increased the availability of lower priced (typically between $3.99 and $9.99), single and double scene assets.
We believe that the lower priced assets will generate an increase in the volume of purchases to offset the lower price point. If the lower priced assets do not generate an increase in purchase volume
sufficient to offset the lower price point, our revenue could be negatively impacted.

We
believe that the increase in availability of free and low-cost adult internet websites in combination with the continued global economic downturn has caused consumers to
increase their viewing of content through the internet rather than through our television VOD and PPV services. Additionally, we believe consumers that have historically viewed our content are also
generally purchasing less content. Our content is a relatively expensive choice of entertainment as compared to other options including mainstream categories of content on our customers' platforms and
adult content on other off-platform media such as the internet. We believe the high price of our content is contributing to the consumer trend of purchasing less of our content or
purchasing other comparable content through alternative media. We have conducted price tests in certain customer markets to estimate whether decreasing the price of our content could generate an
increase in the buy volume sufficient to maintain or increase total gross revenue. The results of those tests appeared to indicate that buy volume would increase enough to offset the impact of the
lower price point and in some cases, result in an overall increase in revenue. If the buy volume of lower priced assets does not increase to offset the impact of the lower content price point, our
revenue could be materially negatively impacted.

In
order to address the competitive challenges presented by free and low-cost adult website providers, we are developing additional value-added products and services to
attract new consumers and recapture prior consumers. For example, we recently began offering a subscription VOD product to consumers through certain cable customer platforms. Consumers that subscribe
to this product on a monthly basis receive access to one or more of our PPV channels as well as a library of VOD content. We are also in the process of developing an
over-the-top service that would allow subscribers to our PPV channels to also have access to a library of content through other electronic devices including mobile phone,
tablet, and computer devices. We are optimistic that these products and services will provide consumers with an incremental, value-added experience that will allow our core products to compete more
effectively with free and low-cost adult website providers.

We
believe our VOD and PPV programming provides a competitively attractive form of adult entertainment as compared to free and low-cost website content because our
programming is frequently higher quality definition and can be viewed on a large television screen in a comfortable setting. During fiscal years 2012 and 2011, 83% and 74%, respectively, of our
consolidated net revenue was attributed to the Transactional TV segment. The Transactional TV segment distributes content to nearly every television provider in the U.S. including the two largest
providers of DBS services, all major cable television systems, and the two telephone company providers of cable television services.

During
fiscal year 2009, we began expanding our services into international markets in North America, Europe and Latin America. We also had limited launches in Asia. We believe the
business model that we have successfully executed in the U.S. will also be successful in international markets. International expansion has provided us with an opportunity to leverage our existing
content libraries and technology infrastructure. Additionally, the revenue percentages we receive in international markets are typically higher than the percentages we receive in the U.S. because the
international cable and satellite markets are less consolidated, which allows us to negotiate higher revenue percentages. However, the international revenue percentages we receive from certain
customers has declined as a result of competitive pressures. It is reasonably possible that we could experience further pressure to lower our revenue percentages consistent with our experience in the
U.S. market. If the revenue percentages we receive from international customers decreases, our existing revenue would be negatively impacted and our prospects for international revenue growth would
decline.

International
revenue was approximately $6.2 million during fiscal year 2012 as compared to $5.8 million in fiscal year 2011. We plan to continue to add new international
customers, and we are optimistic that we will continue to gain additional market share in international markets where we currently distribute content. We believe international distribution will be an
important component of the Transactional TV segment's revenue results in the future.

Programming Strategy

The Transactional TV segment's programming is designed to provide a wide variety of content to consumers. The programming strategy
attempts to provide films that are unique to each VOD service and PPV channel during a programming month and avoids duplicating programmed films across the available services. Through this strategy,
we provide consumers with access to more unique films, a wider variety of actors and actresses, and a greater variety of studio representation. We focus on prime time viewing blocks and program
specific content in those blocks to create an appointment-viewing calendar designed to drive viewers to traditionally less popular times for viewing adult content.

Our
programming department spends a significant amount of time and resources researching consumer choices and preferences. We periodically perform primary consumer research to understand
buying habits and to obtain information on how we can best provide consumers with an exceptional viewing experience. We also dedicate resources to analyzing performance data from our products as well
as our competitors' products. We believe this research and analysis has enhanced our Transactional TV segment's performance. Additionally, we use the research to recommend changes to our customers'
platforms in order to improve the overall performance of the adult content category. We believe our customers view the provision of this research and the related recommendations as an incremental,
value-added service that distinguishes us from our competitors.

Content Delivery System

Our Transactional TV segment delivers its PPV video programming to cable and satellite operators via satellite through
in-house digital broadcast technology. The program signal is encrypted so that it is unintelligible unless it is passed through the properly authorized decoding devices. The signal is
transmitted (uplinked) by a third party earth station to a designated transponder on a third party

commercial
communications satellite. The transponder receives the program signal that has been uplinked by the earth station, amplifies the program signal and then broadcasts (downlinks) the signal to
commercial satellite dishes located within the satellite's area of signal coverage. The programming is
downlinked by MSOs and DBS providers at their head-ends and uplink centers. This programming is received in the form of a scrambled signal. We provide these operators with decoder
equipment that allows them to decode the signal and then re-distribute it via their own systems.

Our
Transactional TV segment maintains a satellite transponder lease agreement for one full-time digital transponder with a total bandwidth of approximately 18 MHz on the
Galaxy 23 satellite, approximately 9 MHz on the NSS 806 satellite, and approximately 5MHz on Hot Bird 6/8/9. These transponders provide the satellite transmission necessary to broadcast our
Transactional TV segment's networks. The signal of the satellites that we use covers the continental U.S., Alaska, Hawaii, Latin America, Europe, North Africa and portions of the Caribbean Islands and
Canada.

Our
Transactional TV segment delivers its VOD service to domestic cable MSOs primarily through transport services provided by TVN Entertainment Corporation. International VOD services
are delivered through alternative methods such as shipping hard drives that contain content as well as through electronic transfer and related delivery methods.

Digital Broadcast Technology

Our digital broadcast infrastructure allows us to ingest, encode, edit, play out, store and digitally deliver our VOD and PPV services.
We also maintain one of the largest digital libraries of its kind. Our infrastructure is scalable and includes playlist automation for all channels; encoding and playout to air; a storage area network
for near-line content movement and storage; archiving capability in a digital format; and integration of our proprietary media asset management database for playlist automation and program
scheduling.

Programming

We obtain our programming for each VOD service and PPV network primarily by licensing content distribution rights from producers. We
generally obtain distribution rights for a five-year term. From time to time, we also produce programming in order to develop unique and new content. We acquire and produce films and
scenes each month. In addition, we may license entire content libraries on an as-needed basis or in order to facilitate a larger transaction. Licensed programming undergoes rigorous
quality control processes prior to broadcast in order to ensure compliance with strict internal and external broadcasting standards. We obtain age verification documentation for each film we license
in accordance with federal statutes. This
documentation is maintained on site for the duration of the license term in accordance with 18 U.S.C. § 2257 and 28 C.F.R. 75 et seq.

Competition

We believe the Transactional TV segment's most challenging competition has been from low-cost and free adult internet
websites. The increase in the availability of free and low-cost internet websites as well as the decline in global economic conditions has caused consumers to seek lower-cost
options for obtaining adult content. We believe that consumers who would otherwise purchase our content have been obtaining their content through low-cost and free adult internet websites.
Additionally, consumers are generally viewing all categories of content, including mainstream and adult content, more frequently on their computer and other non-television electronic
devices. We believe these developments have resulted and may continue to result in further competitive pressures on us from free and low-cost adult internet websites.

Our
primary direct competitor in this segment has historically been Playboy Enterprises, Inc. (Playboy), which has a long operating history in the adult entertainment space.
Recently, Playboy

entered
into an agreement with a large adult internet provider, Manwin Holding SARL (Manwin), and we believe Manwin is operating and managing the Playboy broadcast assets. We believe that Manwin has
significantly greater financial, technical and marketing resources, as well as better name recognition than we do through its branded internet websites. Other competitors, such as Hustler TV, are also
expanding their distribution which has resulted in increased competition in the adult broadcast industry.

Our
content has typically outperformed our competitors' content on the majority of MSO and DBS platforms as measured by revenue per server hour. As a result, we occupy more shelf space
on these platforms. We believe that some competitors have been willing to execute contracts with distributors that contain lower revenue percentages and/or provide revenue guarantees in order to
obtain or retain channels and VOD platform hours. While we believe that our content continues to outperform the competition, we cannot predict whether that performance advantage will insulate us from
further pressure on revenue percentages. If our competitors continue to accept lower revenue percentages from the MSO and DBS platforms and if we are unable to maintain a performance advantage or
cause the MSO and DBS providers to recognize the value our content performance provides, then our customers could put additional pressure on us to lower our revenue percentages. A reduction in our
revenue percentages would have a material adverse impact on our results of operations and financial condition.

We
also face competition in the adult entertainment market from other providers of adult programming including producers of adult content, adult video/DVD rentals and sales, premium
movie channels that broadcast adult-themed content, telephone adult chat lines, books and magazines aimed at adult consumers, and adult-oriented wireless services. Our Transactional TV segment also
faces general competition from other forms of non-adult entertainment, including sporting and cultural events, television networks, feature films, and other programming.

Film Production Segment

Our Film Production segment derives revenue from two principal businesses: (1) the production and distribution of original
motion pictures including erotic thrillers and horror movies (collectively, owned content); and (2) the distribution of third party films where we act as a sales agent for the product
(collectively, repped content). This segment also periodically provides producer-for-hire services to major Hollywood studios.

The
film production markets were significantly impacted by the economic downturn in prior fiscal years and as a result, the Film Production segment's customers reduced their content
acquisition budgets. We believe this occurred because our customers relied on their existing libraries to reduce spending and costs. The changes in the market conditions had a significant negative
impact on the Film Production segment's operating results and during fiscal year 2011, we incurred film cost impairment charges of approximately $2.2 million as well as an increase in the
allowance for unrecoverable accounts of $0.8 million. These charges were incurred as a result of the depressed performance of the Film Production segment. Although the Film Production segment
stabilized in fiscal year 2012 and returned to profitability, it is reasonably possible that further unfavorable conditions within the film production markets could occur, which could cause the
operating results of this segment to decline.

Owned Content Revenue

The Film Production segment produces and distributes its owned content to three primary customer groups. The first customer group
consists of cable MSO and DBS service providers, and these customers are the same customers as those serviced by our Transactional TV segment. Owned content that is distributed through PPV appears on
unbranded linear channels within the mainstream or adult PPV movie location on the platform's electronic programming guide. Content that is distributed through VOD appears within menu categories such
as "uncensored." Our movies are sold to end users

at
retail prices typically ranging from $3.99 to $9.99. We receive a percentage share of the revenue derived from sales on these platforms. Revenue percentages are typically higher than those earned
by our Transactional TV segment due to the mainstream nature of the content. Owned content is distributed to cable MSO and DBS service providers using the same technology and transport providers as
described above in the Transactional TV segment discussion.

The
second customer group for our owned content distribution consists of premium movie service providers such as Cinemax and Showtime. The premium movie service providers license and
distribute the content as part of their late-night programming and within their subscription VOD product. The owned content is typically sold to these customers for a flat license fee.

The
third customer group consists of various international distributors including international premium movie service providers. These international distributors typically
re-distribute the content to end-users. The owned content is typically sold to these customers for a flat license fee.

The
Film Production segment does not employ production staff employees. Third-party production staff is used to produce owned content, and our employees provide in-house
oversight over the critical areas of production such as scripting, casting, shoot location, and post production.

Sales Agency (Repped Content) Service Revenue

Our Film Production segment has long-standing relationships and an established reputation in the independent mainstream
film production markets. We act as a sales agent for film producers and license both domestic and international rights to their movies, which we refer to as repped content, under Lightning
Entertainment Group, Inc. We also license films under our Mainline Releasing Group brand. We earn a commission for licensing film rights on behalf of producers. The commission we earn from
domestic distribution is typically more favorable than the commission we earn from international distribution. We also earn a marketing fee for many of the films that we represent. Each contract
typically allows for the recovery of any producer advances and costs incurred in preparing the film for market, including advertising costs, screening costs, costs to prepare the trailer, box art,
screening material, and similar costs necessary to ensure the movie is market ready.

We
generate revenue from these arrangements, which we refer to as repped content revenue, through arrangements with mainstream distributors world-wide. The distributors we
sell to deliver the repped content to consumers through various channels including theatrical, pay-television, free television and other similar distribution channels. We also distribute
repped content on VOD platforms through U.S. cable MSOs. Additionally, our repped content is distributed to retail markets including DVD markets, home video markets and other retail markets through
arrangements we have executed with leading independent mainstream distribution partners.

Producer-for-Hire and Other Revenue

Producer-for-hire and other revenue relates to amounts earned through producer-for-hire
arrangements, music royalty fees, and the delivery of other miscellaneous film materials to customers. We provide producer-for-hire services that require us to incur costs
associated with a film production, and we earn a fee for our services and the costs incurred once the film has been delivered to the customer. Although we maintain no ownership rights for the produced
content, we are responsible for the management and oversight of the project and incur significant economic risk until the project is completed. The gross margins we generate from
producer-for-hire arrangements are less than the returns we generate from our owned content and have historically been between 5% and 20% of net revenue. We did not generate
any producer-for-hire revenue in fiscal year 2012, and we generated approximately $4.0 million of producer-for-hire services revenue during
fiscal year 2011.

For our owned content, we compete primarily with other branded content such as Girls Gone Wild and Howard Stern. With respect to our
sales agency business, we compete with a variety of small, privately-owned companies. We compete with these companies based on licensing fees charged, content quality, ability to deliver our products
on-time, relationships with decision makers in the industry, and the professionalism of our sales team. For our producer-for-hire services, we compete against a
wide variety of independent movie producers.

Direct-to-Consumer Segment

Our Direct-to-Consumer segment derives revenue primarily through subscriptions to our adult consumer websites.
Content for the websites is primarily obtained through licensing agreements executed by our Transactional TV segment for
broadcast rights. Traffic to our consumer websites is derived through either a targeted network of affiliates that earn a referral fee from us when diverted traffic converts into paying members, or
type-in traffic whereby users navigate directly to the websites by typing the addresses of our websites into their web browsers.

Competition

The adult internet industry is highly competitive. Free and low-cost content websites that allow users to access large
libraries of content have created an even more competitive and challenging environment.

OTHER INFORMATION

Intellectual Property

Despite our efforts to protect our intellectual property rights, unauthorized parties may attempt to copy aspects of our products or
obtain and use information that we regard as proprietary. Policing unauthorized use of our rights is difficult. Additionally, third parties might independently develop technologies that are
substantially equivalent or superior to our technologies.

Seasonality

We have not experienced any material seasonality within our business during the fiscal years ended March 31, 2012 or 2011.

Working Capital

We fund our operations through a combination of available cash, cash equivalents, and cash flows generated from operations. In
addition, our line of credit is available for additional working capital needs.

Customers

We derived approximately 50% of our total revenue for the fiscal year ended March 31, 2012 from Comcast Corporation (Comcast),
DIRECTV, Inc. (DirecTV), DISH Network (DISH), and Time Warner Cable Inc. (Time Warner). We generate revenue from these customers through our Transactional TV and Film Production
segments. The loss of any one of these major customers would have a material adverse impact on these segments and the Company as a whole. Specific financial information about the total revenue and
outstanding accounts receivable from each of our major customers is incorporated by reference herein to Note 12Major Customers within the Notes to Consolidated Financial Statements
included herein.

We are regulated by governmental authorities, both domestic and international. Regulation relates to, among other things, licensing,
access to satellite transponders, foreign investment and use of confidential customer information and content, including standards of decency and obscenity. Changes in the regulation of our operations
or changes in interpretations of existing regulations by courts or regulators or our inability to comply with current or future regulations could have a material adverse impact on our financial
position and results of operations.

Research and Development

Financial information about research and development costs is incorporated herein by reference to the Research and Development Costs
discussion within Note 1Organization and Summary of Significant Accounting Policies within the Notes to Consolidated Financial Statements included herein.

Employees

As of March 31, 2012, we had approximately 192 employees primarily located in the U.S. Our employees are not members of a union,
and we have never suffered a work stoppage. We consider our employee relations to be good.

Financial Information about Segments and Geographic Areas

Financial information about segments and geographic areas is incorporated herein by reference to Note 11Segment and
Geographic Information within the Notes to Consolidated Financial Statements included herein.

Available Information

We file annual, quarterly and current reports, and amendments thereto, with the Securities and Exchange Commission (SEC) under
Section 13(a) of the Exchange Act. We make these reports available free of charge on or through our internet website, www.noof.com, as soon as
reasonably practicable after we electronically file such material with, or furnish such material to, the SEC. Information on our website should not be considered to be a part of this report or any
other SEC filing unless explicitly incorporated by reference herein or therein. You may request a copy of these filings at no cost. Please direct your requests to:

You
can also read and copy any materials that we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington DC 20549, on official business days during
the hours of 10:00 a.m. and 3:00 p.m. You can obtain information on the operations of the Public Reference Room by calling the SEC at 1-800-732-0330.
The SEC also maintains an internet site (www.sec.gov) that contains our reports, proxy and information statements and other information that we file
electronically with the SEC. Information on the SEC's website should not be considered part of this report or any other SEC filing unless expressly incorporated by reference herein or therein.

Michael Weiner. Mr. Weiner was appointed President of New Frontier Media, Inc. in February 2003 and was then appointed
to the position
of Chief Executive Officer in January 2004. Prior to being appointed President, he held the title of Executive Vice President and co-founded New Frontier Media, Inc. As Executive
Vice President, Mr. Weiner oversaw content acquisitions, network programming, and all contract negotiations related to the business affairs of New Frontier Media, Inc. In addition, he
was instrumental in securing over $20 million to finance the infrastructure build-out and key library acquisitions necessary to launch the television networks. Mr. Weiner's
experience in entertainment began with the formation of Inroads Interactive, Inc. in May 1995. Inroads Interactive, based in Boulder, Colorado, was a reference software publishing company
dedicated to aggregating still picture, video, and text to create interactive, educational-based software. Among Inroads Interactive's award winning releases were titles such as Multimedia Dogs,
Multimedia Photography, and Exotic Pets. These titles sold over 1 million copies throughout the world through its affiliate label status with Broderbund Software and have been translated into
ten different languages. Mr. Weiner was instrumental in negotiating the sale of Inroads Interactive to Quarto Holdings PLC, a UK-based book publishing concern. Prior to
Inroads Interactive, Mr. Weiner was in the real estate business for 20 years, specializing in shopping center development and redevelopment in the Southeast and Northwest United States.
He was involved as an owner, developer, manager, and syndicator of real estate in excess of $250 million.

Marc Callipari. Mr. Callipari joined New Frontier Media in August 2006 as the Vice President of Legal Affairs and shortly
thereafter was
promoted to Chief Legal Officer. He is responsible for New Frontier Media's legal and human resources functions. Mr. Callipari started his legal career over 17 years ago in Washington,
D.C. where he practiced commercial litigation from 1994 to 1999 with a large, international law firm and a boutique litigation firm. More recently, he served as captive outside and then
in-house counsel to Level 3 Communications, an unaffiliated international communications company, from 1999 to 2006, where he was responsible for a wide range of
world-wide litigation and transactional matters, including the negotiation of several multi-million dollar telecommunication infrastructure asset purchases and sales. He graduated from the
University of San Diego School of Law in 1994, is a member of the Colorado, Virginia and District of Columbia Bars and has been admitted to practice before numerous federal courts throughout the
United States.

Scott Piper. Mr. Piper joined New Frontier Media in February 2007 as Chief Technology and Information Officer.
Mr. Piper has been an
information technology professional for approximately 20 years and has held senior leadership roles for the past 12 years. He has extensive experience in infrastructure design and
delivery for large scale enterprises, including the implementation of over fifteen customer contact centers, some with as many as 1,500 seats. He was responsible for one of the first successful large
voice over internet protocol ("VoIP") contact centers in the U.S. Prior to joining New Frontier Media, Mr. Piper was employed from 1994 to 2006 by EchoStar Satellite L.L.C. ("EchoStar"). While
employed in a variety of roles during his tenure at EchoStar, he most recently held the title of Vice President of IPTV. Mr. Piper was also responsible for the launch of DISH Network's
web-based entertainment portal prior to his departure. Mr. Piper holds a Bachelor of

Science
in Marketing and Finance from the University of Colorado and a Masters in Science in Telecommunications from the University of Denver.

Grant Williams. Mr. Williams has served as Chief Financial Officer since April 2008. Mr. Williams served as the
Corporate Controller of
New Frontier Media from October 2006 until April 2008. From February 2004 until October 2006, Mr. Williams was employed by eFunds Corporation and served in various senior manager accounting and
finance roles. Prior to February 2004, Mr. Williams was employed by Ernst and Young, LLP as a manager within the assurance and advisory services group. Mr. Williams holds a
Bachelor of Accountancy from the University of Oklahoma and is a Certified Public Accountant in Colorado and Arizona.

ITEM 1A. RISK FACTORS.

While our Special Committee of independent directors is currently overseeing, with the assistance of its financial and legal advisors, a review of strategic alternatives to
maximize shareholder value, there can be no assurances that such a review process will result in a transaction or, if a transaction is approved by our board of directors, what will be the terms or
timing of such a transaction.

In April 2012, we announced that a Special Committee of independent members of our board of directors was overseeing, with the
assistance of its legal and financial advisors, a review of strategic alternatives to maximize shareholder value, including the unsolicited non-binding acquisition proposals received from
Manwin and Longkloof Limited (Longkloof), one of our existing shareholders, that could result in the sale of New Frontier Media, Inc. and/or its assets. No decision has been made to sell New
Frontier Media and we can give no assurance that we will identify and undertake a transaction that allows our shareholders to realize an increase in the value of our stock or provide any guidance on
the timing of any such action. We also can give no assurance that any potential transaction or other strategic alternative, once identified, evaluated and consummated, will provide greater value to
our shareholders than that reflected in the current stock price. In addition, we can give no assurance that if a transaction is recommended by the Special Committee, approved by our board of
directors, and recommended by our board of directors to our shareholders, whether such transaction will be approved by our shareholders should such approval be required. Any transaction would be
dependent upon a number of factors that may be beyond our control, including, among other factors, the U.S. and global economic and market conditions, industry trends, the interest of third parties in
our or their businesses, and the availability of financing to potential buyers on reasonable terms or at all. We can give no assurance that we will consummate a transaction of any kind.

Unsolicited acquisition proposals and a related proxy contest may be disruptive to our business.

On March 9, 2012 and March 23, 2012, we announced that we had received unsolicited acquisition proposals from Longkloof
and Manwin, respectively, to acquire all of our outstanding shares of common stock (not already owned in the case of Longkloof). In addition, Longkloof increased its offer price, and as further
described below, informed us of its intention to nominate four individuals to our board of directors at our 2012 annual meeting of shareholders. On July 12, 2012, the Company entered into a
settlement agreement with Longkloof whereby, among other things, Longkloof withdrew its nominees to our board of directors. While our special committee of independent directors (Special Committee) is
considering the acquisition proposals and other strategic
alternatives, there can be no assurance that Longkloof, Manwin or another third party will not make another unsolicited acquisition proposal in the future or that we will not be required to expend
considerable time and resources in connection with a proxy contest, as described below. The review and consideration of any acquisition proposal or the consideration of matters associated with a proxy
contest may be a significant distraction for our management and employees and could require the expenditure of significant time and resources by us. Moreover, any of the foregoing may create
uncertainty for our employees, and this uncertainty may adversely affect our ability to retain key employees and to hire new talent. The foregoing may also

create
uncertainty for our customers, suppliers and other business partners, which may cause them to terminate, or not to renew or enter into, arrangements with us. The distraction to our management
and employees and the uncertainty arising from unsolicited acquisition proposals or a proxy contest may disrupt our business, and could result in a material adverse effect on our financial position
and results of operations.

The costs associated with our current and future legal proceedings can be substantial, specific costs are unpredictable and not completely within our control, and unexpected
increases in litigation costs could adversely affect our operating results.

On May 2, 2012, we announced we had received notification that Longkloof, which is an entity affiliated with the publicly-traded
South African conglomerate Hosken Consolidated Investments Limited (Johannesburg Stock Exchange: HCI) (Hosken) submitted a notice indicating its intention to nominate four individuals for election to
our board of directors at our 2012 annual meeting of shareholders. On May 31, 2012, we filed a law suit against Hosken, its Executive Chairman, Marcel Golding, Longkloof, Mile End Limited,
Sabido Investments (Pty) Ltd., Adam Rothstein, Eric Doctorow, Mahomed Khalik Ismail Sheriff, Willem Deon Nel and Barbara Wall (collectively, the Defendants) alleging, among other things, that
the Defendants' notice of nominations of candidates for election to our board of directors at the 2012 annual meeting of shareholders (the Notice) is invalid because the Defendants failed to disclose
certain information related to those acting in concert with Longkloof as required by the advance notice provisions contained in our Amended and Restated Bylaws. The complaint also alleged that the
Defendants violated Section 13(d) of the Exchange Act, when they failed to disclose that the Defendants were operating as a "group" for the purposes of seeking control of the Company, and the
true nature, extent and intent of their "group," as required by Section 13(d) of the Exchange Act. On June 8, 2012, the Defendants filed an answer and counterclaim (the Counterclaim) for
declaratory judgment and injunctive relief. We and all of the individuals serving on our board of directors currently were named as defendants in the Counterclaim (the Counterclaim Defendants). The
Counterclaim alleged that the Counterclaim Defendants breached their fiduciary duties to our shareholders and it also sought declaratory judgment as to whether the Defendants complied with the advance
nomination provisions of our Amended and Restated Bylaws. On June 20, 2012, the Defendants filed an amended answer and counterclaim, adding two new counterclaims. The additional counterclaims
alleged that the Counterclaim Defendants breached their contract with the
Company's shareholders and that the individuals serving on the Special Committee tortiously interfered with the electoral rights of the Company's shareholders. The answer and Counterclaim sought,
among other things, (a) a dismissal of our complaint with prejudice, (b) a declaration that the Notice is valid and effective or, in the alternative, an order that we and the individual
members of our board of directors accept a corrected Notice, (c) an injunction enjoining us and our board of directors from taking any action to interfere with the ability of our shareholders
to vote for the Defendants' candidates for election to our board of directors at our 2012 annual meeting of shareholders and (d) an award to Defendants of costs and disbursements of the action,
including reasonable attorneys' fees. On July 12, 2012, we entered into a settlement agreement with the Defendants (the Settlement Agreement). Under the terms of the Settlement Agreement, among
other things, the Defendants agreed to (a) terminate their proxy contest, (b) vote their shares of stock in our Company in favor of our board of directors nominees at our 2012 annual
meeting of shareholders as well as any other proposals recommended to shareholders by our board of directors at the meeting, and (c) withdraw their nominees for election to our board of
directors. We agreed, among other things, that if we do not engage in a sale, merger or similar change of control transaction by December 31, 2012, Longkloof will have the right to designate
one person to our board of directors. As part of the settlement agreement, all pending litigation in the U.S. District of Colorado between us and the Defendants will be dismissed by the companies
without admission of any wrongdoing by either party. In addition, the Defendants agreed to certain standstill restrictions through December 31, 2012.

On
March 23, 2012, Mr. Elwood M. White filed a class action complaint against us and our board of directors, purportedly on behalf of our public shareholders (the Elwood
Claim). The complaint alleges that the individual members of our board of directors have breached their fiduciary duties owed to our shareholders in connection with Longkloof's initial unsolicited,
conditional proposal to acquire all of the outstanding shares of our common stock that are not already beneficially owned by Longkloof.

We
may be obligated to reimburse the expenses and indemnify for liabilities of our directors in connection with the Elwood Claim and the Counterclaim. While we believe our director and
officer insurance policy will enable us to recover a portion of any such payments, any expenses or payments that are not recovered from our insurance may harm our financial performance.

The
costs associated with legal proceedings are typically high, relatively unpredictable, and are not completely within our control. While we attempt to forecast and control such costs,
the costs may be materially more than expected, which could adversely affect our operating results. Moreover, we may become involved in unexpected litigation, including, without limitation, litigation
relating to current and subsequent attempts to takeover the Company, which would increase our aggregate litigation costs, and could adversely affect our financial position and results of operations.
We are not able to predict the outcome of any legal action, and an adverse decision in any legal action could significantly harm our business and financial performance.

Our officers and directors have limited liability.

We are obligated under our organizational documents and pursuant to indemnity agreements with our directors and all of our executive
officers to indemnify them against certain liabilities incurred in connection with their services. Pursuant to the indemnity agreements, we agree, to the fullest extent permitted by the laws of the
State of Colorado and as set forth in the indemnity agreements, to indemnify and advance expenses to each such officer or director in connection with actions, suits, inquiries, interviews,
investigations, arbitrations or other proceedings arising out of such person's service as an officer, director and or agent of the Company, subject to the terms, conditions and limitations contained
therein. These indemnity agreements, as well as the indemnification provisions in our articles of incorporation, could limit our ability and the ability of our shareholders to effectively take action
against our officers and directors arising from their service to us. In addition, there could be significant harm to our business and financial performance resulting from our payment of premiums
associated with insurance or payments of expenses related to a defense or settlement of claims against our directors or officers, such as the Elwood Claim.

Our business could be negatively affected as a result of the actions of activist shareholders.

As noted above, we received nominations of candidates for election to our board of directors at the 2012 annual meeting of shareholders
from the Defendants, which was withdrawn pursuant to the Settlement Agreement. In the event of a proxy contest, we may not be able to respond successfully to such contest, which would be disruptive to
our business and operations. Even if we are successful, our business and operations could be adversely affected by a proxy contest involving us
because:



responding to proxy contests and other actions by activist shareholders can be costly and time-consuming,
disrupting operations and diverting the attention of our directors, management and employees, and can lead to uncertainty;



perceived uncertainties as to our future direction may result in the loss of business opportunities and customers, and may
make it more difficult to attract and retain qualified personnel and customers; and



if individuals are elected to our board of directors with a specific agenda, it may adversely affect our ability to
effectively and timely implement strategic plans and create additional value for our shareholders.

These
actions could cause the market price of our shares of common stock to experience periods of volatility.

The loss of any of our current major customers, or our inability to maintain or negotiate at renewal or otherwise favorable contractual terms with these customers, could
have a material adverse effect on our financial position and results of operations.

We have agreements with the ten largest U.S. cable MSOs and two largest U.S. DBS providers. For the fiscal year ended March 31,
2012, the aggregate revenue we received from our major customers (customers that account for 10% or more of our consolidated net revenue during any one of the fiscal years ended March 31, 2012
or 2011, namely Comcast, DISH, DirecTV and Time Warner) was approximately 50% of our total company-wide revenue. Our agreements with these operators may be terminated without penalty and
with little advance notice. As a result, we are sometimes subject to renegotiation of the agreements during their stated term. If one or more of these cable MSO or DBS operators terminates or does not
renew our agreements, or negotiates mid-term or agrees only to renew the agreements on terms less favorable than those of our current agreements (including removing or replacing with a
competitive offering or otherwise one or more of our PPV channels or VOD offerings from their platforms), our financial position and results of operations could be materially adversely effected.

If the general economic environment, consumer discretionary spending or other conditions continue to be unfavorable or further deteriorate, our financial position and
results of operations could be materially adversely impacted.

We believe consumers view our content as a discretionary item rather than a necessity. Accordingly, our results of operations tend to
be more sensitive to changes in macroeconomic conditions that impact consumer spending, including discretionary spending. Other factors, including consumer confidence, employment levels, interest
rates, tax rates, consumer debt levels, and fuel and energy costs, could reduce consumer spending or change consumer purchasing habits. We believe many of these factors have adversely affected
consumer spending during each of our fiscal years ended March 31, 2012 and 2011, and, consequently, our business and results of operations.

For
example, our Transactional TV segment, which is our largest segment based on revenue, experienced a decline in revenue in each of the fiscal years ended March 31, 2012 and
2011. We also experienced challenging conditions within our Film Production segment that caused an operating loss during fiscal year 2011. If the general economic environment, consumer discretionary
spending or other conditions continue to be unfavorable or further deteriorate, our financial position and results of operations could be materially adversely impacted.

We rely on third party service providers to deliver our content to our customers via satellite uplink, transponder and VOD transport services. If these services are
disrupted, it could cause us to lose revenue and adversely affect our financial position and results of operations.

Our satellite uplink, transponder and VOD transport provider services are critical to our business. If our service providers fail to
provide the contracted services, our programming operations would in all likelihood be suspended, resulting in a loss of substantial revenue. If our satellite uplink and transponder providers
improperly manage their facilities, we could experience signal disruptions and other quality problems that, if not immediately addressed, could cause us to lose revenue. All our domestic Transactional
TV segment VOD transport services are provided by TVN Entertainment Corporation (TVN). If TVN fails to provide the contracted services, our domestic Transactional TV segment VOD programming operations
would in all likelihood be suspended, resulting in a materially adverse impact to our financial position and results of operations.

access
to satellite transponders to transmit programming to our cable and DBS customers. Limitations to satellite transponder capacity could materially adversely affect our financial position and
results of operations. Access to transponders may be restricted or denied if:



we or the satellite owner is indicted or otherwise charged as a defendant in a criminal proceeding;



the Federal Communications Commission issues an order initiating a proceeding to revoke the satellite owner's
authorization to operate the satellite;



the satellite owner is ordered by a court or governmental authority to deny us access to the transponder;



a governmental authority commences an investigation concerning the content of the transmissions;



we are deemed by a governmental authority to have violated any obscenity law; or



our satellite transponder provider determines that the content of our programming is harmful to its name or business.

Our
ability to contract with cable operators and DBS providers to carry our programming is critical to our business. We can give no assurance that we will be able to continue to obtain
carriage with cable operators and DBS providers in the future.

If we are unable to compete effectively with other forms of adult and non-adult entertainment, our financial position and results of operations could be
materially adversely impacted.

We believe the increased availability and popularity of adult entertainment through free and low-cost websites has resulted
in a decrease in our paying viewership, resulting in a decrease in our revenue. The quality and quantity of content available on these free and low-cost websites continues to improve. The
content we sell through the Transactional TV segment typically has a retail price between $9.95 and $14.99 and is typically less explicit than the content offered on internet websites. As a result of
the continued global economic downturn, consumers may view internet delivered content as a replacement to our content based on the difference in cost, edit standard and availability of certain niche
content that we do not distribute. An increase in the migration of consumers to free and low-cost internet delivered content could result
in a further decline in our buy rates and have a negative impact on our financial position and results of operations.

We
have implemented a variety of strategies to compete effectively with free and low-cost adult internet websites. These strategies may be unsuccessful and may result in an
accelerated decline of our revenue. These strategies and the related negative outcomes may include, but are not limited to, those described below:



Lower priced assetsDuring fiscal year 2012, our customers increased the availability of lower priced
(typically between $3.99 and $9.99), single and double scene assets. If the lower priced assets do not generate an increase in purchase volume sufficient to offset the lower price point, our revenue
could be negatively impacted.



Subscription VOD servicesWe recently began offering a subscription VOD product to consumers through certain
cable customer platforms. Consumers that subscribe to this product on a monthly basis receive access to one or more of our PPV channels as well as a library of VOD content. If consumers that would
otherwise purchase multiple VOD movies for a higher total retail cost elect to reduce their expenditures by subscribing to this service, our revenue could be negatively impacted.



Over-the-top servicesWe are in the process of developing an
over-the-top service that would allow subscribers to our PPV channels to also have access to a library of content through other electronic devices including mobile phone,
tablet, and computer devices. If consumers that would otherwise purchase multiple movies for a higher total retail cost elect to reduce their

expenditures
by subscribing to our PPV channels and viewing additional content through the over-the-top service, our revenue could be negatively impacted.

We
also face competition in the adult entertainment industry from other providers of adult programming, adult video/DVD rentals and sales, books and magazines aimed at adult consumers,
adult-oriented telephone chat lines, premium movie channels that broadcast adult-themed content, and adult-oriented wireless services. To a lesser extent, we also face general competition from other
forms of non-adult entertainment, including sporting and cultural events, other television networks, feature films, and other programming and entertainment options.

Our
ability to compete depends on a variety of factors, many of which are outside of our control. These factors include: the quality and appeal of our competitors' content relative to
our offerings; the strength of our competitors' brands; the technology utilized by our competitors; the effectiveness of our competitors' sales, marketing efforts and the attractiveness of their
product offerings; general consumer behaviors; and preferences on how consumers choose to spend their discretionary income.

Our
existing competitors, as well as potential new competitors, may have significantly greater financial, technical and marketing resources, as well as better name recognition than we
do. This may allow them to devote greater resources than we can to the development and promotion of their product offerings. These competitors may also engage in more extensive technology research and
development, and adopt more aggressive pricing policies for their content. Additionally, increased competition could result in license fee reductions, lower margins and a negative impact on our
financial position and results of operations.

The continued addition of new competitors to our business could have a material adverse affect on our operating performance.

We face competition from established adult video producers, as well as independent companies that distribute adult entertainment, some
of which is provided for free through internet websites. These competitors may include Hustler, Wicked Pictures, Vivid Entertainment, and Manwin. In the event that cable and/or satellite companies
seek to purchase adult video content for their PPV or VOD service directly from adult video producers or other independent distributors of such content, our VOD and PPV business is likely to suffer.
For example, an independent producer of adult content, which has historically distributed content only through the internet, replaced one of our PPV channels on the largest DBS platform in the U.S.
during fiscal year 2010. Increased competition in the adult category could also lead to downward pressure on the license fees that our customers are willing to pay for our content.

Some terms of our agreements with customers could be interpreted in a manner that could adversely affect the revenue due to us under those agreements.

Some of our customer agreements contain most favored nation clauses. These clauses typically provide that if we enter into an agreement
with another customer that contains certain more favorable terms, we must offer those terms to those customers whose agreements contain most favored nations clauses. We have entered into a number of
customer agreements with terms that differ in some respects from those contained in other agreements. These agreements are complex and if other parties conclude that we are not in compliance with most
favored nation clauses, such customers may elect to renegotiate, or terminate their existing agreements and as a result, our financial position and results of operations could be materially adversely
affected.

We may incur costs to defend ourselves against legal claims initiated in connection with our distribution of adult-themed content.

Because of the adult-oriented content that we distribute, we may be subject to obscenity or other legal claims by third parties. Our
financial position and results of operations could be harmed if we were found liable for this content or if costs to defend such claims proved significant. Implementing measures to reduce our exposure
to this liability may require us to take steps that would substantially limit the attractiveness of our content and/or its availability in various geographic areas, which would negatively impact our
ability to generate revenue. Furthermore, our insurance may not cover or may not adequately protect us against all of these types of claims.

Increased government regulation in the United States and abroad could impede our ability to deliver our content and expand our business.

New laws or regulations, or the new application of existing laws could prevent us from making our content available in various
jurisdictions or otherwise have a material adverse affect on our business, financial position and operating results. These new laws or regulations
may relate to liability for information retrieved from or transmitted over the internet, taxation, user privacy and other matters relating to our products and services. Moreover, the application of
internet related laws governing issues such as intellectual property ownership and infringement, pornography, obscenity, libel, employment, and personal privacy is still developing.

Cable
and DBS operators could become subject to new governmental regulations that could further restrict their ability to broadcast our programming. If new regulations make it more
difficult for cable and DBS operators to broadcast our programming, our financial position and results of operations could be adversely affected.

Because
we have expanded our service offerings to international markets, we must now comply with diverse and evolving international regulations. New application of regulations related to
our operations internationally and our ability to comply with these regulations could have a material adverse impact on our financial position and results of operation.

We have disclosed a material weakness in our internal control over financial reporting, and if we have other material weaknesses or significant deficiencies in our internal
control over financial reporting, our financial position and results of operations could be negatively impacted.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act. As disclosed in Item 9A, we identified a material weakness in our internal control over financial reporting relating to accounting
for our provision for income taxes. A material weakness is a deficiency, or combination of deficiencies, that result in a reasonable possibility that a material misstatement of a company's annual or
interim financial statements will not be prevented or detected on a timely basis. As a result of this material weakness, our management concluded that our internal control over financial reporting and
our disclosure controls and procedures were not effective as of March 31, 2012. Management believes that it has taken actions to enhance our internal controls over financial reporting as it
relates to the provision for income taxes. If our remedial measures are insufficient to address the material weakness or if additional material weaknesses or significant deficiencies in our internal
control occur in the future, our consolidated financial statements may contain material misstatements or other errors and we could be required to restate our financial results. If we cannot produce
reliable financial reports, investors could lose confidence in our reported financial information, our financial position and results of operations could be harmed, the market price of our stock may
decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require significant additional financial and management resources.

Changes in our effective tax rate or assessments arising from tax audits may have an adverse impact on our results.

We are subject to taxation in various jurisdictions, both domestically and internationally. Significant judgment is required in the
determination of our income tax benefit, and this determination requires the interpretation and application of complex and sometimes uncertain tax laws and regulations. Our effective tax rate may be
adversely impacted by changes in the mix of earnings between jurisdictions with different statutory tax rates, in the valuation of our deferred tax assets, and by changes in tax rules and regulations.
For instance, the availability and timing of lapses in the U.S. research and development tax credit, the accounting for uncertain tax positions, the determination of valuation allowances for our
deferred tax assets, and the amount of our estimated tax deduction for domestic production activities may add more variability to our future effective tax rates. Additionally, we are subject to
examination of our fiscal year 2009 amended tax returns, current tax returns and our determination of certain tax positions. The Internal Revenue Service ("IRS") is currently auditing our fiscal year
2010 returns. If the IRS's current audit or future audits of our returns results in a determination that certain of our tax positions are invalid, our financial position and results of operations
could be materially adversely affected.

If the Film Production segment produces, acquires or represents film content that is not well-received by our customers, we may not be able to recover the investments made
in the film content.

We have a history of impairing films in our content library and recording allowances for unrecoverable accounts for recoupable costs
and producer advances. The Film Production segment's ability to continue to create or acquire film content and obtain rights to represent content that is well-received by our customers is critical to
the segment's future success. If a film produced, acquired or represented by the Film Production segment does not sell as well as anticipated, we may not be able to recover our investment in the film,
including, but not limited to, the cost of producing or acquiring the film, the costs associated with promoting the film, costs associated with post-production work on the film, or
advances and other recoupable costs associated with representing the film. No assurance can be given that the Film Production segment's past success in generating profits from its investment in its
films will continue.

Antitakeover provisions in our Amended and Restated Articles of Incorporation, as amended, and our Rights Agreement may discourage or prevent a change of control.

Our charter documents may inhibit a takeover or change in control that certain of our shareholders may consider beneficial. Provisions
in our Amended and Restated Articles of Incorporation may have the effect of delaying or preventing a merger or acquisition of us, or making a merger or acquisition less desirable to a potential
acquirer, even when our shareholders may consider
the acquisition or merger favorable. For example, our board of directors, without further shareholder approval, may issue preferred stock that could delay or prevent a change of control as well as
reduce the voting power of the holders of our common stock, even with the effect of losing control to others. In addition, our board of directors has adopted a Rights Agreement, commonly known as a
poison pill, which may delay or prevent a change of control and may also make a merger or acquisition of us less desirable. If a change in control transaction perceived by our shareholders to be in
their best interest were delayed or blocked by our protective measures, the value of an investment in our securities may be negatively impacted.

If we are not able to retain our key executives, it may be more difficult for us to manage our operations and our financial position and result of operations could be
adversely affected.

With only approximately 192 employees, our success depends greatly upon the contributions of our executive officers and our other key
personnel. The loss of the services of any of our executive officers

or
other key personnel could have a material adverse effect on our financial position and results of operations. No assurance can be given that we will be successful in attracting and retaining these
personnel.

Our inability to identify, fund the investment in, and commercially exploit new technology could have an adverse impact on our financial position and results of operations.

We are engaged in a business that has experienced significant technological change over the past several years and will likely continue
to experience further changes. As a result, we face all the risks inherent in businesses that are subject to rapid technological advancement, such as the possibility that a technology that we have
invested in becomes obsolete, our inability to identify in a timely manner emerging technologies that may impact our business, or technology advancement that may make our offerings obsolete. In any
such event, we may be required to invest significant amounts of capital in new technology. Our inability to identify, fund the investment in, and commercially exploit such new technology could have an
adverse impact on our financial position and results of operations. Our ability to implement our business plan and to achieve the results projected by management will be dependent upon management's
ability to predict technological advances and implement strategies to take advantage of such changes. We may also experience impairments related to existing investments that we have made in new
technology.

Negative publicity, lawsuits or boycotts by opponents of adult content could adversely affect our financial position and results of operations and discourage investors from
investing in our publicly traded securities.

We could become a target of negative publicity, lawsuits or boycotts by one or more advocacy groups who oppose the distribution of
adult entertainment. These groups have mounted negative publicity campaigns, filed lawsuits and encouraged boycotts against companies whose businesses involve adult entertainment. The costs of
defending against any such negative publicity, lawsuits or boycotts could be significant, could hurt our finances and could discourage investors from investing in our publicly traded securities. As a
leading provider of adult entertainment, we cannot assure you that we may not become a target of such negative publicity in the future.

Because we are involved in the adult programming business, it may be more difficult for us to raise money or attract market support for our stock.

Some banking entities, investors, investment banking entities, market makers, lenders and other service providers in the investment
community may decide not to provide financing to us, or to participate in our public market or other activities due to the nature of our business, which, in turn, may adversely impact the value of our
stock, and our ability to attract market support or obtain financing.

We may be unable to protect our intellectual property rights or others may claim that we are infringing on their intellectual property.

Third parties could assert infringement claims against our business in the future. Claims for infringement of all types of intellectual
property rights are a common source of litigation. Infringement claims can require us to modify our products, services and technologies or require us to obtain a license to permit our continued use of
those rights. We may not be able to perform either of these actions in a timely manner or upon reasonable terms and conditions. Failure to do so could harm our financial position and results of
operations. In addition, future litigation relating to infringement claims could result in substantial costs to us and a diversion of management resources. Adverse determinations in any litigation or
proceeding could also subject us to significant liabilities and could prevent us from selling some of our products, services or technologies.

If we experience system failures, the services we provide to our customers could be delayed or interrupted, which could harm our business reputation and result in a loss of
customers.

Our ability to provide reliable service largely depends on the efficient and uninterrupted operations of our digital broadcast
technology and related systems. Any significant interruptions could severely harm our business and reputation and result in a loss of revenue and customers. Our systems and operations could be exposed
to damage or interruption from fire, natural disaster, unlawful acts, power loss, telecommunications failure, unauthorized entry, computer viruses, or similar events. Although we have taken steps to
prevent system failures, we cannot be certain that our measures will be successful and that we will not experience service interruptions. Further, our property and business interruption insurance may
not be adequate to compensate us for all losses or failures that may occur.

Our long-lived assets may incur further charges and expenses.

We conducted annual goodwill and other identifiable intangible assets impairment tests as of March 31, 2012 and 2011. We also
perform quarterly analyses on the valuation of long-lived assets including our content and distribution rights, film library, and other long-lived assets as well as the
recoverability of recoupable costs and producer advances. We recognized the following continuing operations charges for asset impairments and in the case of the allowance for unrecoverable accounts,
operating expenses, in our statements of operations (in thousands):

Year Ended March 31,

2012

2011

Goodwill

$

3,743

$



Film costs

214

2,193

Allowance for unrecoverable accounts

606

823

Content and distribution rights

51

241

Other identifiable intangible assets



37

Other long-lived assets

100

128

Total charges and expenses

$

4,714

$

3,422

If
our estimates of future performance as it relates to our long-lived assets change, we may be required to record further charges and expenses related to the assets, which could have a
material adverse impact on our financial position and results of operations. The ongoing uncertainty in general economic and market conditions could increase the likelihood of additional asset charges
and expenses being recorded in future periods. In addition, the valuation analysis for long-lived assets is subject to a high degree of judgment and complexity and changes in estimates
could have a material adverse impact on our financial position and results of operations.

We may pursue acquisitions, joint ventures, new services and other strategic transactions and activities to complement or expand our business and add shareholder value that
may not be successful.

Our future success may depend on opportunities to acquire or form strategic partnerships with other businesses or technologies or
establish new services that could complement, enhance or expand our current business or products or that might otherwise offer us growth opportunities. We may not be able to complete such transactions
or activities and such transactions or activities, if executed, could pose significant risks and could have a negative effect on our financial position and results of

operations.
Any transactions or activities that we are able to identify and complete may involve a number of risks, including:



the diversion of our management's attention and resources from our existing business to integrate the operations and
personnel of the acquired, combined or created business or joint venture;



the diversion of our management's attention and resources from existing business to create new services;



possible adverse effects on our financial position and results of operations during the integration process or
implementation process; and



the inability to achieve the intended objectives of the transactions or activities.

In
addition, we may not be able to successfully or profitably integrate, operate, maintain and manage our newly acquired operations, employees or activities. We may not be able to
maintain uniform standards, controls, procedures and policies, and this may lead to operational inefficiencies.

New
acquisitions, joint ventures, new services and other transactions may require the commitment of significant capital that would otherwise be directed to investments in our existing
businesses or be distributed to shareholders. Commitment of this capital may cause us to defer or suspend any common stock dividends or share repurchases that we otherwise may have made.

We may be unsuccessful with our initiative to expand our Transactional TV segment distribution into international markets due to our inexperience with international adult
content delivery and foreign government regulations.

We continue to expand our Transactional TV segment services into new international markets. We have not historically had significant
operations internationally or transacted with international government regulators, competitors, cultures or consumers. As a result of our inexperience, we may be unsuccessful in executing our
international growth initiatives.

We may experience a reduction in the revenue percentages we receive from our international customers.

We earn revenue by receiving a percentage of the total retail purchase price paid by consumers to purchase our content on customers'
VOD and PPV platforms. Domestically, the revenue percentages we receive from our customers have been reduced since our initial distribution of content, and we believe the reduction is due to the
increased negotiating leverage our customers gained from the domestic consolidation of the cable and satellite industry as well as from increased competition. Internationally, the revenue percentages
we receive are typically higher than the percentages we receive in the U.S. because the international cable and satellite markets are less consolidated, which allows us to negotiate higher revenue
percentages. However, we have lowered our
international revenue percentages with certain customers as a result of competitive pressures. For example, a customer in Latin America recently reduced the percentage of revenue we receive from them
by more than 50%. It is reasonably possible that we could experience further pressure to lower our international revenue percentages consistent with our experience in the U.S. market. A reduction in
the revenue percentages we receive from our international customers could have a material adverse impact on our financial position and results of operations.

If we are required to make payments under our guarantee of the state of Georgia producer-for-hire production tax credits that we sold during fiscal
year 2011, our financial position and results of operations could be materially adversely impacted.

Our Film Production segment completed producer-for-hire services related to a movie production in the state of
Georgia during fiscal year 2011. We realized certain transferable production tax credits in the state of Georgia associated with the production, and we sold the tax credits to a third-party resulting
in a reduction in the net cost of the production of approximately $0.8 million. In connection with the sale of the tax credits, we agreed to reimburse the buyer if the tax credits are
recaptured, forfeited, recovered or otherwise become invalid in the next four years. If we are required to make payments under our guarantee of the tax credits, our financial position and results of
operations could be materially adversely impacted.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES.

We use the following principal facilities in our operations.

Colorado: We lease a facility that is approximately 48,500 square feet in Boulder, Colorado. This facility houses our Transactional TV,
Direct-to-Consumer and Corporate Administration segments. The facility is 85% utilized.

California: We lease a facility that is approximately 4,600 square feet in Santa Monica, California. This facility houses our Film
Production
segment's production and licensing business. The facility is 100% utilized.

We
believe that our facilities are adequate to maintain our existing business activities.

ITEM 3. LEGAL PROCEEDINGS.

For a discussion of legal proceedings, see Note 13Commitments and Contingencies in the Notes to Consolidated
Financial Statements included herein and incorporated herein by reference.

Our common stock is traded on the NASDAQ Global Select Market under the symbol "NOOF".

The
following table sets forth the range of high and low sales prices for our common stock for each quarterly period indicated, as reported on the NASDAQ Global Select Market:

Quarter Ended

High

Low

Quarter Ended

High

Low

June 30, 2011

$

1.85

$

1.21

June 30, 2010

$

2.15

$

1.54

September 30, 2011

1.69

1.06

September 30, 2010

1.90

1.35

December 31, 2011

1.40

0.84

December 31, 2010

2.04

1.58

March 31, 2012

1.60

1.00

March 31, 2011

2.18

1.67

The
high and low sales prices per share as reported on the NASDAQ Global Select Market on June 20, 2012, were $1.71 and $1.68, respectively. As of June 20,
2012, there were approximately 164 registered holders of record of New Frontier Media's common stock. A substantially greater number of holders of New Frontier Media common stock are "street name" or
beneficial holders, whose shares are held by record by banks, brokers, and other financial institutions.

ISSUER PURCHASES OF EQUITY SECURITIES

From time to time, we have executed stock repurchase programs and stock purchase agreements based on current market conditions and our
capital and financial position. This activity is conducted in a manner intended to comply with the safe harbor provisions of Rule 10b-18 promulgated under the Exchange Act, and to
minimize the impact of any purchases upon the market for our securities. Repurchased shares are returned to authorized but unissued shares of common stock in accordance with Colorado law.

In
August 2009, we announced that our board of directors adopted a stock repurchase program. Under the program, we could repurchase with available cash and cash from operations up to
1.0 million shares of our outstanding common stock, from time to time through open market or privately negotiated transactions, as market and business conditions permitted. The program was
scheduled to expire in March 2012. During the fiscal years ended March 31, 2011 and 2010, we repurchased approximately 0.2 million shares and 0.1 million shares of common stock,
respectively, under the stock repurchase plan for total purchase prices of approximately $0.4 million and $0.1 million, respectively. During the three month period ended
September 30, 2011, we substantially completed the stock repurchase program by acquiring approximately 0.7 million shares of common stock for a total purchase price of approximately
$0.9 million.

In
October 2011, our board of directors authorized an extension of the August 2009 stock repurchase program. The extension allowed for an additional repurchase of up to
0.8 million shares of common stock, in an amount not to exceed in aggregate $1.0 million, exclusive of any fees, commissions or other expenses related to such repurchases. The program
was scheduled to expire on March 31, 2014, if not completed sooner. During the three month period ended December 31, 2011, we repurchased approximately 0.2 million shares of
common stock under the extended stock repurchase program for a total purchase price of approximately $0.3 million. In December 2011, the board of directors also authorized an individual
repurchase of approximately 2.1 million shares of common stock through an open market transaction. The total purchase price of the shares was approximately $2.4 million, and the stock
repurchase program that was extended in October 2011 was concluded as a result of the transaction.

STOCK PERFORMANCE GRAPH

New Frontier Media, Inc. is designated a smaller reporting company and has therefore excluded the stock performance graph as
allowed under the instructions to Item 201(e) of Regulation S-K of the Securities Act.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

INTRODUCTION

Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to provide the readers of our
accompanying consolidated financial statements with a narrative discussion about our business. The MD&A is provided as a supplement to the consolidated financial statements and accompanying notes and
should be read in conjunction with those financial statements and accompanying notes. Our MD&A is organized as follows:



Overview. General description of our business and
operating segments as well as trends, challenges, strategies and objectives.

Results of Operations. Analysis of our consolidated
results of operations for the three years presented in our financial statements for each of our operating segments: Transactional TV, Film Production, Direct-to-Consumer, and
Corporate Administration.



Liquidity and Capital Resources. Analysis of changes in
our cash flows, discussion of our financial condition and discussion of our potential sources and uses of liquidity.

Recent Accounting Pronouncements. Accounting
pronouncements that have been recently issued.

This
annual report on Form 10-K includes forward-looking statements within the meaning of the safe harbor provisions of Section 27A of the Securities Act, and
Section 21E of the Exchange Act. All statements regarding trend analysis and our expected financial position and operating results, business strategy, financing plans and the outcome of
contingencies are forward-looking statements. Forward-looking statements are also identified by the words "believe," "project," "expect," "anticipate," "estimate," "intend," "strategy," "plan," "may,"
"should," "could," "will," "would," and similar expressions or the negative of these terms or other comparable terminology. The forward-looking statements are subject to risks and uncertainties that
could cause actual results to differ materially from those set forth or implied by any forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date on which they are made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information,
future events, or otherwise.

Factors
that could cause actual results to differ materially from the forward-looking statements include, but are not limited to, our ability to: 1) retain our four major
customers and related revenue that accounted for approximately 50% of our total revenue during the fiscal year ended March 31, 2012; 2) maintain the license fee structures currently in
place with our customers; 3) maintain PPV channel and VOD shelf space with existing customers; 4) compete effectively with our current competitors and potential future competitors that
distribute adult content to U.S. and international cable MSOs and DBS providers; 5) successfully compete against other forms of adult and non-adult entertainment such as pay and
free adult-oriented internet websites and adult-oriented premium channel content; 6) produce film content that is well received by our Film Production segment's customers; 7) comply with
current and future regulatory developments both domestically and internationally; and 8) retain our key executives. The foregoing list of factors is not exhaustive. A more complete list of
factors that might cause such differences include, but are not limited to, those discussed in the Risk Factors section of this Form 10-K.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (Continued)

OVERVIEW

We are a provider of transactional television services and a distributor of general motion picture entertainment. Our key customers
include large cable and satellite operators, premium movie channel providers and major Hollywood studios. Our three principal businesses are reflected in the Transactional TV, Film Production and
Direct-to-Consumer operating segments. Our Transactional TV segment distributes adult content to cable and satellite operators who then distribute the content to retail consumers via VOD and PPV
technology. We earn revenue by receiving a contractual percentage of the retail price paid by consumers to purchase our content on customers' VOD and PPV platforms. The Transactional TV segment
represents our largest operating segment based on revenue and assets and has historically been our most profitable segment; however, the segment has experienced declining operating income due to
competition from free and low-cost websites and the continued global economic downturn. These factors are discussed in more detail below. The Film Production segment generates revenue through the
distribution of mainstream content to large cable and satellite operators, premium movie channel providers and other content distributors. This segment also periodically provides contract film
production services to major Hollywood studios (producer-for-hire arrangements). The Film Production segment incurred an operating loss in fiscal year 2011 primarily due to impairment charges. Our
Direct-to-Consumer segment primarily generates revenue from membership fees earned through the distribution of adult content to consumer websites. The Direct-to-Consumer segment has historically
incurred operating losses and is expected to continue to incur operating losses for the foreseeable future. Our Corporate Administration segment includes all costs associated with the operation of the
public holding company, New Frontier Media, Inc.

The
business models of each of our segments are summarized below.

Transactional TV Segment

The Transactional TV segment is focused on the distribution of content to consumers via MSO and DBS customers' VOD and PPV services. We
earn revenue by receiving a percentage (sometimes referred to as a split) of the total retail purchase price paid by consumers to purchase our content on customers' VOD and PPV platforms. Revenue
growth could occur if we launch our services to new cable MSOs or DBS providers, which would primarily occur in international markets; when the number of subscribers for customers where our services
are currently distributed increases, assuming the new subscribers are not a result of consumers switching from one provider to the next; when we launch additional services or replace our competitors'
services on existing customer cable and DBS platforms; or when our proportional buy rates improve relative to our competitors. Alternatively, our revenue could decline if we were to experience lower
consumer buy rates, as has been the case with the continued global economic downturn; if consumers migrate to other forms of low-cost or free adult entertainment such as pay and free internet
websites; if our customers pay us a smaller percentage of the consumer retail purchase price; if additional competitive channels are added to our customers' platforms; if our existing customers remove
or replace our services on their platform;
or if the volume of consumer buys of lower priced content is not significant enough to offset the impact of the lower prices.

The
Transactional TV segment has experienced declining revenue during each of the two fiscal years ended March 31, 2012. We believe that the decline has been due to a combination
of factors including a) increased competition from free and low-cost internet websites, and b) a decline in consumer purchases of our content in response to the global economic downturn.
Although we are taking steps that we believe will help stabilize the Transactional TV segment's performance as discussed

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (Continued)

below,
it is reasonably possible that competition from internet websites as well as the impact of the continued global economic downturn could cause the Transactional TV segment's revenue to further
decline. A further decline in the segment's revenue could have a materially adverse impact on our consolidated financial position and results of operations. Although we believe that competition from
internet websites and the global deterioration of the economy has negatively impacted the Transactional TV segment's results, it is not possible for us to precisely quantify or reasonably estimate the
financial impact of these developments because the information is unavailable and cannot be reasonably obtained.

During
fiscal year 2012, the Transactional TV segment's performance was unfavorable relative to our expectations due to the above noted impact of increased competition from free and
low-cost internet websites as well as a continuation of lower consumer purchases of our content. Based on our assessment of the fiscal year 2012 underperformance and certain other industry factors, we
adjusted downward our five year forecast for the segment. These downward adjustments resulted in a goodwill impairment charge for the segment of approximately $3.7 million, and the segment had
no further goodwill assets recorded as of March 31, 2012.

In
an effort to address the Transactional segment's declining revenue, we have invested in initiatives to stabilize the segment such as developing new and unique content packages as well
as investing in sales and support staff to execute our international growth strategy. We have also focused on maintaining our competitive market position by offering a wide range of high-quality
content as well as adjusting our content mix and distributing new content packages. We are also executing a strategy of providing low-cost, short-form content to consumers in an effort to compete more
effectively with free and low-cost internet websites. We previously performed market tests on the distribution of lower priced content to estimate whether an increase in customer buys would be
sufficient to offset the lower per buy revenue in order to maintain or increase revenue. The results of those tests were favorable, so we began executing the low-priced content strategy. If the
increase in customer buys is not sufficient to offset the lower per buy revenue, revenue could further decline resulting in a negative impact on our financial position and results of operations.

Our
growth efforts for the Transactional TV segment continue to focus on increasing the revenue we generate from international markets. We currently distribute content in international
markets including North America, Europe, Latin America and Asia. The Transactional TV segment's international revenue during the fiscal years ended March 31, 2012 and 2011 was approximately
$6.2 million and $5.8 million, respectively. The large majority of the international revenue within the Transactional TV segment has occurred though the distribution of content to VOD
platforms. Although the rate of international revenue growth has been lower than expected, we believe there will be opportunities to improve the international revenue rate of growth in the future
primarily through new and expanded distribution in Latin America.

During
fiscal year 2012, the Transactional TV segment incurred higher costs in an effort to improve its domestic and international revenue results. The increase in expenses occurred
within various areas of the Transactional TV segment's cost structure including higher transport costs; higher employee costs for sales, programming, and content production; higher facility and
maintenance costs from leasing a new facility; and higher depreciation costs for the new facility tenant improvements and other acquired equipment. We expect a continuation of these expenses in future
periods in order to support our domestic revenue stabilization and international expansion efforts. If our attempts to increase revenue through these efforts are not successful or occur at a slower
pace than expected, the segment could experience a further decline in gross and operating margins.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (Continued)

Transactional
TV segment revenue during fiscal year 2012 as compared to the prior fiscal year experienced the following trends:



Domestic VOD revenue, which represented approximately 47%, or $15.9 million, of the Transactional TV segment's
total revenue during fiscal year 2012, declined by 8% as compared to the prior year results. We believe the decline in revenue was due to a combination of factors including an increase in the
availability of free and low-cost adult internet websites as well as the impact of lower consumer discretionary spending in response to the challenging economic conditions. We are continuing to pursue
strategies that we believe will stabilize the decline in domestic VOD revenue including introducing new content packages and lower priced film assets; however, these strategies may be unsuccessful, in
which case the trend of declining VOD revenue could continue.



Domestic PPV revenue, which represented approximately 33%, or $11.2 million, of the Transactional TV segment's
total revenue during fiscal year 2012, declined by approximately 9% as compared to the prior year results. We believe the decline in revenue was due to the impact for free and low-cost adult internet
websites as well as lower consumer discretionary spending. Domestic PPV revenue also declined due to the impact of increased competition on the second largest DBS platform in the U.S. Our strategies
to improve the domestic PPV revenue include the introduction of new PPV channels, the introduction of a new, low-priced film asset channel, and the distribution of new and unique content on existing
channels. If these strategies are unsuccessful, the trend of declining PPV revenue could continue.



International revenue was $6.2 million in fiscal year 2012 and increased approximately 5% as compared to the prior
year. Approximately 72% of the international revenue generated in fiscal year 2012 was from the distribution of content to VOD platforms. International revenue was higher primarily as a result of new
customer launches, an increase in the quantity of content distributed to existing customers, and a general improvement in our content performance with existing customers. Although the growth in
international revenue was positive, the rate of growth was lower than expected primarily due to launches that were later than expected as well as lower than expected buy rates with certain new
launches. Despite the challenges, we expect to realize continued growth from international revenue in future periods.

When
considering the future operating results of the Transactional TV segment, we believe the following challenges and risks could adversely impact the segment's future operating
results:



declines in new and existing consumer buys of adult TV services due to a migration to other free and low-cost adult media
services such as the internet;



adverse impacts to our business from a continued decline in discretionary consumer spending as a result of less favorable
economic conditions or otherwise;



slowing growth of the overall adult entertainment category and limited incremental distribution opportunities within the
U.S.;



reductions in opportunities to gain domestic market share due to our competitors' efforts to maintain market share
including providing content at lower revenue percentages and in limited cases, free content and channels;



challenges associated with our continued expansion into international markets and our inexperience with international
customers, buy rates, and consumer habits;

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (Continued)



increased pressure from both domestic and international customers that threaten to remove one or more of our channels or
content from their platform if we do not reduce the revenue percentages we receive;



increased VOD competition from established adult entertainment companies or new entrants such as production studios and
internet-based distributors because the barriers of entry for this product line are low; and



continued product commoditization.

In
addition to the above noted risks, our agreements typically allow our customers to make significant changes to our distribution (such as reduce the quantity of our VOD content or
remove one or more PPV channels from the platform) and may be terminated on relatively short notice without penalty. If one or more of our cable MSO or DBS operators changes our distribution terms,
terminates or does not renew our agreements, or does not renew the agreements on terms as favorable as those of our current agreements, our financial position and results of operations could be
materially adversely affected.

All
the above mentioned challenges and risks, and others that we may not have identified, could have a material adverse impact on our business. We are executing initiatives as discussed
above in order to mitigate the impact of these risks and challenges. However, not all the risks and challenges can be
managed by us because the ultimate outcome will be dependent upon the actions of other parties such as our customers.

During
fiscal year 2013 and future periods, we expect to focus our efforts within the Transactional TV segment on achieving the below
objectives:



continuing our international distribution expansion into new and existing geographic locations;



improving the value proposition for consumers, such as reducing the retail price of our content to increase buy volume and
providing over-the-top services;



replacing our competitors' PPV channels with our channels on both existing and new customer platforms;

transitioning cable MSO and DBS providers to less edited content standards; and



improving the mix of programming.

Film Production Segment

The Film Production segment has historically derived the majority of its revenue from two principal businesses: (1) the
production and distribution of original motion pictures including erotic thrillers and horror movies (collectively, owned content); and (2) the distribution of third party films where we act as
a sales agent for the product (collectively, repped content). This segment also

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (Continued)

periodically
provides contract film production services to certain major Hollywood studios (producer-for-hire arrangements).

We
generate revenue by licensing our owned content for a one-time fee to free TV, premium TV and other domestic and international distributors. We also license owned content to domestic
and international cable MSO and DBS providers through revenue percentage arrangements that are structured in a similar manner to our Transactional TV segment agreements. The revenue percentages we
receive from cable MSO and DBS providers for the Film Production segment content are higher than the revenue percentages we receive for our Transactional TV segment content primarily due to the
mainstream nature of the content. However, the retail price for our mainstream content is lower than our Transactional TV segment content, so the per-buy revenue per transaction is often the same as
the Transactional TV segment.

We
generate repped revenue through sales agency arrangements whereby we earn a sales commission and marketing fees by selling mainstream films on behalf of film producers. The Film
Production segment has established relationships with independent mainstream filmmakers and represents these filmmakers' movies primarily through Lightning Entertainment Group, Inc. We plan to
further focus our efforts on obtaining higher quality content in an effort to improve our repped revenue in fiscal year 2013.

The
Film Production segment periodically acts as a contract film producer for major Hollywood studios. Through these producer-for-hire arrangements, we provide services and incur costs
associated with the film production. Once the film has been delivered to the customer, we earn a fee for our services. Although we maintain no ownership rights for the produced content, we are
responsible for the management and oversight of the production. Historically, we have not produced these movies unless we have an executed agreement with a customer. These services have historically
generated a gross margin of between 5% and 20%. However, our historical performance may not be representative of producer-for-hire performance in the future.

Film
Production segment revenue during fiscal year 2012 as compared to the prior fiscal year experienced the following trends:



Owned content revenue declined primarily because the prior fiscal year included approximately $1.8 million of
revenue from the completion of an episodic series with a premium channel customer, and no similar revenue was realized in fiscal year 2012. Revenue was also lower as a result of a $0.3 million
decline in VOD revenue, and we believe the decline was due to lower consumer discretionary spending in response to the depressed economic conditions. The declines in revenue were partially offset by
higher revenue from an increase in the execution and completion of one-time distribution sales agreements. Although we did not complete an episodic series arrangement in fiscal year 2012, we did
produce a series in fiscal year 2012 and had related cash outflows of approximately $1.6 million. We expect to deliver and recognize revenue of approximately $2.3 million from this
arrangement in fiscal year 2013.



Repped content revenue declined primarily due to the execution and completion of fewer distribution sales agreements as
compared to the prior fiscal year.



Producer-for-hire and other revenue declined during fiscal year 2012 because we completed and recognized revenue of
approximately $4.0 million from producer-for-hire arrangements during fiscal year 2011, and no similar producer-for-hire revenue was recognized during fiscal year 2012. We do not currently have
any executed or anticipated producer-for-hire arrangements for fiscal year 2013, but we may pursue such opportunities in the future.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (Continued)

When
considering the future operating results of the Film Production segment, we believe the following challenges and risks could adversely impact this segment's operating
results:



declines in one-time owned and repped content distribution sales arrangements due to a reduction in our customers' content
budgets or our inability to obtain content that is well received by the market;



adverse impacts to our business from a continuation of reduced consumer discretionary spending as a result of unfavorable
economic conditions;



declines in new and existing consumer VOD and PPV buys of our erotic owned content due to a migration of customers to free
or low-cost adult internet websites;



the identification and execution of owned content deals with premium movie channels could become less frequent or be
eliminated; and



increased competition to our owned content from more explicit adult film offerings.

All
of the above mentioned challenges and risks, and others that we may not have identified, could have a material adverse impact on our business. We are executing initiatives as
discussed herein in order to mitigate the impact of these risks and challenges. However, not all the risks and challenges can be managed by us because the ultimate outcome will be dependent upon the
actions of other parties such as our customers.

During
fiscal year 2013 and in future periods, we expect to focus our efforts within the Film Production segment on achieving the below
objectives:

During
fiscal year 2011, owned content films within the Film Production segment underperformed as compared to our expectations. Additionally, the former Co-Presidents of the segment
departed. As a result, we adjusted downward the expected future performance of certain owned content films which resulted in film cost impairment charges of $2.2 million. We also recorded an
increase in the allowance for unrecoverable accounts of $0.8 million because certain recoupable costs and producer advances associated with repped content films were not expected to be
recovered.

During
fiscal year 2012, certain owned content films underperformed as compared to our expectations. We therefore adjusted downward the expected future performance of those films, which
resulted in film cost impairment charges of $0.2 million. We also recorded an increase in the allowance for unrecoverable accounts of $0.6 million because certain recoupable costs and
producer advances associated with repped content films obtained prior to fiscal year 2010 were not expected to be recovered. We have a history of impairing film costs and increasing our allowance for
unrecoverable accounts, and it is reasonably possible that we will incur further impairments and charges in the future.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (Continued)

Direct-to-Consumer Segment

Our Direct-to-Consumer segment generates revenue primarily by selling memberships to our adult consumer websites. We have experienced
declines in the Direct-to-Consumer segment revenue, which we believe is due to a decline in consumer spending as a result of the unfavorable economic conditions as well as the availability of free and
low-cost internet content. We expect this segment will continue to incur operating losses for the foreseeable future.

Corporate Administration Segment

The Corporate Administration segment reflects all costs associated with the operation of the public holding company, New Frontier
Media, Inc., that are not directly allocable to the Transactional TV, Film Production, or Direct-to-Consumer operating segments. These costs include, but are not limited to, legal expenses,
accounting expenses, human resource department costs, insurance expenses, registration and filing fees with NASDAQ, executive employee costs, and costs associated with our public company filings and
shareholder communications, which we anticipate will be higher this year due to existing and future litigation as well as our review of strategic alternatives, as previously discussed in this
Form 10-K. During fiscal year 2013 and in future periods, we expect to focus our efforts within the Corporate Administrative segment on balancing cost containment with the need for
administrative support.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States. The methods, estimates, and judgments that we use in applying the accounting policies have a significant impact on the results that we report in the financial statements. Some of the
accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain. We base our estimates and
judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We continuously evaluate
the methods, estimates and judgments. We believe the following critical accounting policies reflect the more significant judgments, estimates and considerations used in the preparation of the
consolidated financial statements:



the recognition of revenue;



the recognition and measurement of income tax expenses, assets and liabilities (including the measurement of uncertain tax
positions and valuation of deferred tax assets);



the assessment of film costs and the forecast of anticipated revenue (ultimate revenue), which is used to amortize the
Film Production segment's film costs;



the determination of the allowance for unrecoverable accounts, which reserves for certain recoupable costs and producer
advances that are not expected to be recovered;



the amortization methodology and valuation of content and distribution rights; and



the valuation of goodwill, other identifiable intangible and other long-lived assets.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (Continued)

Each
of these critical accounting policies is described in detail below.

Revenue Recognition

Our revenue consists primarily of fees earned through the distribution of programming content through various media outlets including
PPV channels and VOD categories that are distributed on cable and DBS platforms, premium movie channels, pay and free television channels and other available media outlets. Generally, we recognize
revenue when the earnings process is complete as is typically evidenced by an agreement with the customer; services have been rendered or film delivery and acceptance is complete, if applicable; the
license period has commenced; and the fee is fixed or determinable and probable of being collected. The process involved in evaluating the appropriateness of revenue recognition involves judgment
including estimating monthly revenue based on historical data and determining collectability of fees.

Transactional TV Segment VOD and PPV Services

The Transactional TV segment's VOD and PPV revenue are recognized based on buys and monthly subscriber counts reported each month by
cable MSOs and DBS providers. We earn revenue by receiving a contractual percentage of the retail price paid by consumers of the content. Monthly sales information is not typically reported to the
Transactional TV segment until approximately 30 - 90 days after the month of service, which requires us to make monthly revenue estimates for the unreported months
based on the Transactional TV segment's historical experience with each customer. The revenue estimates may be subsequently adjusted to reflect the actual amount earned upon receipt of the monthly
sales reports. A 10% change in our estimated revenue as of March 31, 2012 would have affected our net loss by approximately $0.3 million in fiscal year 2012.

Film Production Segment Owned Content Licensing

Revenue from the licensing of owned content is recognized when persuasive evidence of an arrangement exists, as is typically evidenced
through an executed contract; the delivery conditions of the completed film have been satisfied as required in the contract; the license period of the arrangement has begun; the fee is fixed or
determinable; and collection of the fees is reasonably assured. For agreements that involve the distribution of content through VOD and PPV services and retail markets, we are unable to determine or
reasonably estimate the revenue earned from customers in advance of receiving the reported earnings because the performance materially varies by film and from period to period. As a result, licensing
revenue from these arrangements is not recognized until the amounts are reported by the customers.

Film Production Segment Repped Content Licensing

We recognize revenue from represented film licensing activities on a net basis as an agent. The revenue recognized for these
transactions represents only the sales agency fee earned on the total content licensing fee. The producers' share of the licensing fee is recorded as a liability within the producers payable account
until the balance is remitted to the producer. For agreements that involve the distribution of content through VOD and PPV services and retail markets, we are unable to determine or reasonably
estimate the revenue earned from customers in advance of receiving the reported earnings because the performance materially varies by film and from period to period. As a result, licensing revenue
from these arrangements is not recognized until the amounts are reported by the customers.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (Continued)

The agreements entered into with the producers may also provide for a marketing fee that can be earned by us. The marketing fee is stated as a fixed amount and is contractually earned
upon collection of sufficient film licensing fees as defined by the contract, the terms of which vary depending on film quality, distribution markets and other factors. We recognize marketing fees as
revenue when the
amounts become determinable and the collection of the fee has occurred as defined by the respective contract.

Direct-to-Consumer Segment Membership Fees

Revenue from membership fees is recognized over the life of the membership. We record an allowance for refunds based on expected
membership cancellations, credits and chargebacks.

Income Taxes

We make certain estimates and judgments in determining the income tax benefit. These estimates and judgments are used in the
determination of tax credits, benefits and deductions, uncertain tax positions, and the calculation of certain tax assets and liabilities which are a result of differences in the timing of the
recognition of revenue and expense for tax and financial statement purposes. We also use estimates and judgments in determining interest and penalties on uncertain tax positions. Significant changes
to these estimates could result in a material change to the income tax benefit in subsequent periods.

We
are required to evaluate the likelihood that we will be able to recover deferred tax assets, which requires us to make certain estimates and judgments. We establish valuation
allowances when, based on an evaluation of available evidence, there is a likelihood that some portion or all of the deferred tax assets will not be realized. This evidence may include, but is not
limited to, our historical operating results, the nature of the deferred tax assets, and our projected future operating results. During the first quarter of fiscal year 2012, we determined that it was
more likely than not that deferred tax assets associated with certain capital losses would not be realized and recorded a valuation allowance of $0.1 million for the full capital loss deferred
tax asset. The valuation allowance resulted in an increase in our income tax expense of $0.1 million during the first quarter of fiscal year 2012. We have no other material deferred tax asset
valuation allowances and estimate that all other deferred tax assets will be recoverable. If these estimates were to change and the assessment indicated we would be unable to recover certain deferred
tax assets, we would increase the income tax expense in the period of the change in estimate.

Our
income tax assessment involves dealing with uncertainties in the application of tax regulations. We account for uncertain tax positions using a two-step approach to recognizing and
measuring uncertain tax position liabilities. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than
not that the position will be sustained
on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized
upon ultimate settlement. This process is based on various factors including, but not limited to, changes in facts and circumstances, changes in tax law, settlement of issues under audit, and new
audit activity. Changes to these factors and estimates regarding these factors could result in the recognition of an income tax benefit or an additional charge to the income tax expense.

In
connection with the completion of our fiscal year 2012 annual reporting, we identified overstatement errors in income tax expense incurred in fiscal years prior to the fiscal year
ended March 31, 2011 totaling $587,000. We assessed the impact of these errors on prior annual and interim

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (Continued)

periods.
Based on this assessment, we concluded that the errors did not result in a material misstatement of prior periods, but the correction of the cumulative impact in the fiscal year ended
March 31, 2012 would be material. To correct these errors relating to the prior year provision for income taxes, we therefore reduced accumulated deficit as of April 1, 2010 by $587,000
and recorded corresponding revisions to the fiscal year ended March 31, 2011 deferred tax balances to correct the errors as described above.

Film Costs

We capitalize the Film Production segment's costs incurred for film production including costs to develop, acquire and produce films,
which primarily consist of salaries, equipment and overhead costs, as well as the cost to acquire rights to films. Film costs include amounts for completed films and films still in development.
Production overhead, a component of film costs, includes allocable costs of individuals or departments with exclusive or significant responsibility for the production of the films. Interest expense
associated with film costs is not capitalized because the duration of productions is short-term in nature. Films are typically direct-to-television in nature. Film costs are stated at the lower of
cost, less accumulated amortization, or fair value.

Capitalized
film costs are amortized as an expense within cost of sales using the film forecast method. Under this method, capitalized film costs are expensed based on the proportion of
the film's revenue recognized for such period relative to the film's estimated remaining ultimate revenue, not to exceed ten years. Ultimate revenue is the estimated total revenue expected to be
recognized over a film's useful life. Ultimate revenue for new films and events is typically estimated using actual historical performance of comparable films that are similar in nature (such as
production cost and genre). Film revenue associated with this method includes amounts from all sources on an
individual-film-forecast-computation method. Estimates of ultimate revenue are reviewed quarterly and adjusted if appropriate, and amortization is also adjusted on a
prospective basis for such a change in estimate. Changes in estimated ultimate revenue could be due to a variety of factors, including the proportional buy rates of the content as compared to
competitive content as well as the level of market acceptance of the television product.

Film
costs are reviewed for impairment on a film-by-film basis each quarterly reporting period. We record an impairment charge when the fair value of the film is
less than the unamortized cost. Examples of events or circumstances that could result in an impairment charge for film costs include the underperformance of a film as compared to expectations or a
downward adjustment in the estimated future performance of a film due to an adverse change in the general business climate. Impairment charges associated with film costs could have a material impact
on our financial position and results of operations in future periods.

Fiscal Year 2012 Film Cost Impairments

During fiscal year 2012, we adjusted downward the estimated future revenue for several films primarily due to further deterioration in
the Western European film markets. As a result, we performed further assessments on the films and determined the fair value of the films was less than the unamortized cost of the films, and the
differences were recorded as impairment charges. The impairment charges were recorded in the charge for asset impairments other than goodwill within the Film Production segment. The fair value of the
films was estimated by discounting the films' expected future cash flow by the weighted average cost of capital. The weighted average cost of capital was determined by considering comparable companies
and their cost of equity, cost of debt, capital

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (Continued)

structure,
and other risk factors specific to the segment. A 10% change in the estimated future cash flows of the impaired films would have immaterially affected our net loss in fiscal year 2012. A
10% change in the weighted average cost of capital would also have immaterially affected our net loss in fiscal year 2012.

Recoupable Costs and Producer Advances

Recoupable costs and producer advances represent amounts paid by us that are expected to be subsequently recovered through the
collection of fees associated with the licensing of repped content. In connection with the Film Production segment's repped content operations, we enter into sales agency agreements whereby we act as
a sales agent for a producer's film (Sales Agency Agreements). These Sales Agency Agreements typically include provisions whereby certain costs that are incurred for promotion related activities will
be paid by us on behalf of the producer (such as movie trailer and advertising material costs). We may also pay the producer an advance for the related film prior to the distribution of such film. As
we subsequently license the producer's film and license fees are collected, the recoupable costs and producer advances are recovered by us through these license fee collections. License fees typically
are not paid to the producer of the related film until such recoupable costs and producer advances have been fully recovered.

Recoupable
costs and producer advances are stated at the amounts contractually recoverable through collection of future license fees, net of an allowance for unrecoverable accounts. The
allowance for unrecoverable accounts reflects any loss anticipated from unrecovered recoupable costs and producer advances. Charges to adjust the allowance for unrecoverable accounts are reflected as
a component of operating expenses in the consolidated statements of operations. We evaluate recoupable costs and producer advances on an individual film-by-film basis each
quarter based on a number of factors including our historical experience with charges to the allowance, estimates of future license fee collections, estimates of future recoupable costs to be
incurred, and the condition of the general economy and film industry as a whole. A 10% change in the allowance for unrecoverable accounts as of March 31, 2012 would have affected our net loss
by approximately $0.2 million in fiscal year 2012.

Content and Distribution Rights

The Transactional TV segment's content and distribution rights library primarily consists of licensed films. We capitalize the costs
associated with the content and distribution rights as well as certain editing and production costs and amortize these capitalized costs on a straight-line basis over the lesser of the
license term or estimated useful life (generally 5 years). The licenses typically provide for unlimited showings of the films as well as the right to extract scenes from the movie and use those
scenes to construct new, unique films with scenes from various other licensed films. The content and distribution rights costs are amortized on a straight-line basis over the related
license period or estimated useful life because the estimated number of showings cannot be reasonably determined and we expect that the films will generally generate revenue ratably over the related
license term.

We
periodically review the content library and assess whether our forecasts as it relates to the library's usefulness should be revised downward. In the event that we revise the
forecasts downward, it may also be necessary to write down the unamortized cost of the film library to its estimated net realizable value.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (Continued)

Goodwill, Other Identifiable Intangible and Long-lived Assets

We record goodwill when the purchase price of an acquisition exceeds the estimated fair value of the net identified tangible and
intangible assets acquired. Goodwill is tested for impairment at the operating segment level, which is equivalent to our reporting units, on an annual basis (March 31) and between annual tests
if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include, but are not
limited to, a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit. Application
of the goodwill impairment test requires judgment in the determination of the fair value of each reporting unit. The fair value of each reporting unit is estimated using considerations of various
valuation methodologies which could include income and market valuation approaches. The income approach involves discounting the reporting unit's projected free cash flow at its weighted average cost
of capital, and the market approach considers comparable publicly traded company valuations and recent merger and acquisition valuations. The analysis requires significant judgments, including
estimation of future cash flows, which is dependent on internal forecasts; estimation of the long-term rate of growth; determination of the weighted average cost of capital; and other
similar estimates. Changes in these estimates and assumptions could materially affect the determination of fair value for each reporting unit. We allocate goodwill to each reporting unit based on the
reporting unit expected to benefit from the related acquisition and/or combination.

As
an overall test of the reasonableness of the estimated fair value of the reporting units and the consolidated Company, we also perform a reconciliation of the fair value estimates for
the reporting units to our market capitalization. The reconciliation considers a control premium based on merger and acquisition transactions within the media and entertainment industry and other
available information. A control premium is the amount that a buyer is willing to pay over the current market price of a company as indicated by the traded price per share (i.e., market
capitalization), in order to acquire a controlling interest. The premium is justified by the expected synergies, such as the expected increase in cash flow resulting from cost savings and revenue
enhancements.

Other
identifiable intangible assets subject to amortization have primarily included amounts paid to acquire non-compete agreements with certain key executives, contractual
and non-contractual customer relationships, intellectual property rights, patents and websites.
These costs are capitalized and amortized on a straight-line basis over their estimated useful lives, which is typically five years. Other identifiable intangible asset balances are
removed from the gross asset and accumulated amortization amounts in the period in which they become fully amortized or impaired and are no longer in use. For intellectual property and patents, the
assets are not removed until our legal claim to the assets has expired.

We
continually review long-lived assets that are held and used and other identifiable intangible assets that are subject to amortization for possible impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In evaluating the fair value and future benefits of such assets, we consider whether the
estimated undiscounted future net cash flows of the individual assets are less than the related assets' carrying value and if so, we record an impairment loss for the excess recorded carrying value of
the asset as compared to its fair value.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (Continued)

Fiscal Year 2012 Goodwill Impairment Testing

We performed annual goodwill impairment testing for the Transactional TV segment as of March 31, 2012 using the income and
market valuation approaches. The projected results used in the income valuation approach included estimates of revenue, cost of sales, operating expenses, content acquisitions, capital expenditures
and other related cash flows and activities over a five year future period, and the cash flows were discounted by a risk adjusted discount rate. The market valuation approach required us to estimate
and consider market multiples for companies considered to be comparable to ours and although there was a lack of comparable public companies to consider for the market valuation approach, we believe
the comparable companies considered are reasonably similar to our operations. The income valuation approach was more heavily weighted than the market valuation approach because (a) there was a
lack of comparable public companies to consider for the market valuation approach, and (b) the income valuation approach was more representative of our unique operating performance
characteristics relative to the comparable companies considered in the market valuation approach.

We
assumed an average annual growth rate of 2% for revenue based on both company-specific and general economic risk, and we used a weighted average cost of capital of 23% for the risk
adjusted discount rate. The weighted average cost of capital was determined by considering comparable companies and their cost of equity, cost of debt, capital structure, and other risk factors
specific to the segment. Based on the testing, the carrying value of the Transactional TV segment exceeded the fair value by approximately 50%. A 1% change in the growth rate would cause the
percentage by which the segment's carrying value exceeded the fair value to change by approximately 60 basis points. A 1%
change in the weighted average cost of capital would cause the percentage by which the segment's carrying value exceeded the fair value to change by approximately 300 basis points.

Our
market capitalization was less than the total New Frontier Media, Inc. shareholders' equity balance as of March 31, 2012, which we believe was due to our historical
performance. As an overall test of the reasonableness of the estimated fair value of the reporting units and consolidated Company, a reconciliation of the fair value estimates for the reporting units
to our market capitalization based on the 30-day average closing price of our stock was also performed as of March 31, 2012. The reconciliation reflected an implied control premium
of 35%, which we believe is reflective of historical merger and acquisition transactions involving comparable companies as well as other relevant information.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (Continued)

RESULTS OF OPERATIONS

Transactional TV Segment

The following table sets forth certain financial information for the Transactional TV segment for each of the fiscal years presented
(amounts may not sum due to rounding):

(In millions)
Year Ended March 31,

Percent Change

2012(1)

2011

Net revenue

VOD

$

20.3

$

21.7

(6

)%

PPV

13.0

13.6

(4

)%

Other revenue

0.8

0.5

60

%

Total

34.0

35.9

(5

)%

Cost of sales

14.3

12.8

12

%

Gross profit

19.7

23.1

(15

)%

Gross profit %

58

%

64

%

Operating expenses

17.1

12.1

41

%

Operating income

$

2.6

$

10.9

(76

)%

(1)

The
fiscal year 2012 operating expenses included a $3.7 million goodwill impairment charge. This item is discussed in more detail below.

Net Revenue

VOD

Domestic VOD revenue declined during fiscal year 2012 as compared to fiscal year 2011 by approximately $1.3 million. We believe
the increase in availability of free and low-cost adult internet websites in combination with the continued global economic downturn has caused consumers to view adult content through free
and low-cost internet providers rather than through our VOD television services. We also believe that consumers that have historically viewed our content are reducing their discretionary
spending and are generally purchasing less adult programming due to the relatively high cost of our content compared to other media entertainment options. International VOD revenue also declined
slightly by $0.1 million, and we believe this decline was also due to the same above noted causes of the domestic VOD revenue decline as well as the impact of increased competition on certain
customer platforms. If the above noted conditions persist or worsen, our VOD performance could be materially adversely impacted in the future.

PPV

Domestic PPV revenue declined by approximately $1.1 million in fiscal year 2012 as compared to fiscal year 2011, and we believe
the decline is primarily due to the impact of competition from free and low-cost adult internet websites as well as the continued global economic downturn as described in more detail above
within the VOD revenue discussion. Partially offsetting the decline in domestic revenue was a $0.4 million increase in international PPV revenue from new customer launches and

Other revenue primarily includes revenue from advertising on our PPV channels and from content distribution fees. The increase in other
revenue during fiscal year 2012 as compared to fiscal year 2011 was primarily due to an increase in content distribution fees associated with an increase in the volume of content distributed.

Cost
of sales increased during fiscal year 2012 as compared to fiscal year 2011 primarily due to (a) a $0.5 million increase in costs incurred in connection with a
one-time assumption of certain customer transport costs, (b) a $0.6 million increase in transport costs from our distribution of new domestic content packages and
high-definition content in an effort to improve domestic revenue, and (c) a $0.3 million increase in employee costs necessary to support the increase in content output.

Operating Expenses and Operating Income

Operating expenses increased during fiscal year 2012 as compared to fiscal year 2011 primarily due to (a) a $3.7 million
goodwill impairment charge that is discussed in more detail below, (b) a $0.6 million increase in employee and related costs because an executive employee was reassigned from the
Corporate Administration segment to the Transactional TV segment in order to lead the international sales efforts in Europe, (c) a $0.5 million increase in costs primarily from
accelerating depreciation expenses for certain tenant improvement assets associated with our former facilities and new facility, (d) a $0.6 million increase in employee and related costs
incurred in connection with our international sales efforts as well as our development of new content packages, (e) a $0.7 million increase in facility and equipment maintenance expenses
from our move to a new facility during the fiscal year, and (f) a $0.2 million increase in travel and tradeshow costs associated with efforts to expand international sales. The increase
in expenses was partially offset by (a) a $0.7 million reduction in promotion and advertising expenses because we attended fewer promotional events during the fiscal year, (b) a
$0.4 million decrease in outside services expenses because we discontinued the use
of outside sales consultants that were assisting with our Latin America sales efforts, and (c) a $0.2 million decline in content and distribution rights impairment charges as compared to
the prior fiscal year. Operating income for fiscal year 2012 was $2.6 million as compared to $10.9 million in fiscal year 2011.

Goodwill Impairment Charges

As part of our fiscal year end procedures, we performed a goodwill impairment analysis as of March 31, 2012 on the Transactional
TV segment. We engaged an independent firm to assist us in performing the impairment test and considered the income and market valuation approaches in determining the estimated fair value of the
segment. Using these methods, we determined that the estimated fair value of the Transactional TV segment was less than its carrying value as of March 31,

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (Continued)

2012.
We then performed additional analysis to estimate the implied fair value of goodwill by first allocating the estimated fair value of the segment to the tangible and identifiable intangible
assets and liabilities of the operating segment. The excess of the estimated fair value over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. Based on this
analysis, we recorded a goodwill impairment charge in the fourth quarter of fiscal year 2012 of $3.7 million to reduce the segment's goodwill from $3.7 million to the implied fair value
of goodwill of zero. During fiscal year 2012, the Transactional TV segment's performance was unfavorable relative to our expectations due to the above noted impact of increased competition from free
and low-cost internet websites as well as a continuation of lower consumer purchases of our content due to the continued global economic downturn. Based on our assessment of the fiscal
year 2012 underperformance and certain other industry factors, we adjusted downward our five year forecast for the segment. These downward adjustments resulted in the goodwill impairment charge for
the segment.

Operating Lease for New Facility

During the second quarter of fiscal year 2012, we substantially completed our move to a new 48,500 square foot facility. The leased
facility is primarily used by the Transactional TV, Direct-to-Consumer and Corporate Administration segments, and the new facility replaced our separate digital broadcast and
corporate facilities. The initial term of the related operating lease agreement expires in January 2022 and provides for options to extend the term
of the lease if agreed upon by the landlord and us. In connection with our leasing of the new facility, we reduced the remaining estimated useful lives of certain tenant improvements related to our
formerly leased corporate and digital broadcast facilities to reflect the intended vacating of the facilities prior to the conclusion of the original lease agreements. As a result of the accelerated
depreciation and other factors, we incurred an increase in depreciation operating expenses of approximately $0.5 million in fiscal year 2012. We do not expect to incur any additional
accelerated depreciation expenses in fiscal year 2013; however, we do expect to incur additional depreciation expenses associated with tenant improvements made to our new facility. As a result, we do
not expect to incur any material changes in our facility depreciation expenses in fiscal year 2013. We also incurred an increase in facility and equipment maintenance expenses from our move to a new
facility in fiscal year 2012 of approximately $0.7 million. Approximately $0.3 million of the increase in facility and equipment maintenance costs related to rent expenses incurred on
both our former and new facility during our relocation to the new facility. The payment of dual rent during the relocation is not expected to occur in future periods. See the Cash Flows from Investing
Activities of Continuing Operations discussion within the Liquidity and Capital Resources section of the MD&A for additional information on the cash flow impact from the new facility.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (Continued)

Film Production Segment

The following table sets forth certain financial information for the Film Production segment for each of the fiscal years presented
(amounts in table may not sum due to rounding):

(In millions)
Year Ended March 31,

Percent Change

2012(1)

2011(2)

Net revenue

Owned content

$

3.1

$

4.9

(37

)%

Repped content

2.4

2.8

(14

)%

Producer-for-hire and other revenue

0.5

4.2

(88

)%

Total

6.1

12.0

(49

)%

Cost of sales

2.0

6.4

(69

)%

Gross profit

4.1

5.6

(27

)%

Gross profit %

67

%

47

%

Operating expenses

3.6

7.1

(49

)%

Operating income (loss)

$

0.5

$

(1.5

)

#

(1)

The
fiscal year 2012 operating expenses included $0.2 million in film cost impairment charges and charges to increase the allowance for unrecoverable
accounts of $0.6 million. These items are discussed in more detail below.

(2)

The
fiscal year 2011 operating expenses included $2.2 million in film cost impairment charges and charges to increase the allowance for unrecoverable
accounts of $0.8 million. These items are discussed in more detail below.

#

Represents
an increase or decrease in excess of 100%.

Net Revenue

Owned Content

Revenue declined during fiscal year 2012 because the same prior year period included approximately $1.8 million of revenue from
the completion of our fourth installment of an episodic series with a premium channel customer, and no similar revenue was realized in fiscal year 2012. Revenue was also lower as a result of a
$0.3 million decline in VOD revenue, and we believe the decline was due to depressed economic conditions. The declines in revenue were partially offset by higher revenue from an increase in the
execution and completion of one-time distribution sales agreements.

Repped Content

Repped content revenue includes revenue from the licensing of films that we represent (but do not own) under domestic and international
sales agency relationships with various film producers. Repped content revenue declined during fiscal year 2012 primarily due to the execution of fewer distribution sales agreements as compared to the
prior fiscal year.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (Continued)

Producer-for-hire and Other Revenue

Producer-for-hire and other revenue relates to amounts earned through producer-for-hire
arrangements, music royalty fees and the delivery of other miscellaneous film materials to distributors. Producer-for-hire and other revenue declined during fiscal year 2012 as
compared to fiscal year 2011 because we completed and recognized revenue of approximately $4.0 million from producer-for-hire arrangements during fiscal year 2011, and
no similar producer-for-hire revenue was recognized during fiscal year 2012.

Cost of Sales

Cost of sales is primarily comprised of the amortization of owned content film costs as well as delivery and distribution costs related
to that content. These expenses also include costs incurred to provide producer-for-hire services. Cost of sales declined during fiscal year 2012 as compared to fiscal year
2011 because the same prior year periods included production costs incurred in connection with the completion of producer-for-hire arrangements of approximately
$3.7 million, and no similar production costs were incurred during fiscal year 2012. Cost of sales also declined by approximately $1.1 million due to lower film cost amortization
consistent with the decline in owned content revenue. The decline in costs was partially offset by an increase in expenses primarily incurred in connection with the provision of production consulting
services.

Operating Expenses and Operating Income (Loss)

Operating expenses decreased during fiscal year 2012 as compared to fiscal year 2011 due to (a) a $1.0 million decline in
employee costs primarily associated with the departure of the segment's Co-Presidents and other employees during the second half of fiscal year 2011, (b) a $0.6 million
decline due to lower other identifiable intangible assets amortization because certain intangible assets became fully amortized during the fourth quarter of fiscal year 2011, (c) a
$2.0 million decline in film cost impairment expenses because fiscal year 2012 included $0.2 million in charges whereas fiscal year 2011 included $2.2 million in charges as
discussed in more detail below, and (d) a $0.2 million decline in charges to increase the allowance for unrecoverable accounts, which reserves for recoupable costs and producer advances
that are not expected to be recovered; fiscal year 2012 included $0.6 million in charges whereas fiscal year 2011 included $0.8 million in charges. The fiscal year 2012 charge to
increase the allowance for unrecoverable accounts was due to the underperformance of certain repped content films that were originally licensed in fiscal year 2010. The
increase in costs was partially offset by a decrease in expenses primarily due to lower strategic consulting costs. The Film Production segment incurred operating income of $0.5 million in
fiscal year 2012 as compared to an operating loss of $1.5 million in fiscal year 2011.

Film Cost Impairment Charges

During fiscal year 2012, we recorded impairment expenses of approximately $0.2 million associated with certain owned content
films. We adjusted downward the future performance of certain films primarily due to the further deterioration in the Western European film production markets. As a result, we performed further
assessments on the films and determined the fair value of the films was less than the unamortized cost of the films, and the differences were recorded as impairment charges. The impairment charges
were recorded in the charge for asset impairments other than goodwill within the Film Production segment. The fair value of the films was estimated by discounting the films' expected future cash flow
by the weighted average cost of capital.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (Continued)

During
fiscal year 2011, we recorded impairment expenses of approximately $2.2 million associated with certain owned content films. We adjusted downward the expected performance
for certain films based on a continuation of underperformance as compared to expectations as well as the recent departure of the segment's Co-Presidents. As a result, we performed further
assessments on the films and determined the fair value of the films was less than the unamortized cost of the films, and the differences were recorded as impairment charges. The impairment charges
were recorded in the charge for asset impairments other than goodwill within the Film Production segment. The fair value of the films was estimated by discounting the films' expected future cash flow
by the weighted average cost of capital.

Direct-to-Consumer Segment

The following table sets forth certain financial information for the Direct-to-Consumer segment for each of the
fiscal years presented (amounts in table may not sum due to rounding):

(In millions)
Year Ended March 31,

Percent Change

2012

2011

Net revenue

$

0.7

$

0.8

(13

)%

Cost of sales

0.8

1.2

(33

)%

Gross loss

(0.1

)

(0.4

)

75

%

Operating expenses

0.4

0.7

(43

)%

Operating loss

$

(0.5

)

$

(1.1

)

55

%

Net Revenue

We believe the decline in net revenue during fiscal year 2012 as compared to the prior fiscal year was primarily due to the continued
global economic downturn and a related reduction in consumer spending.

Cost of Sales

Cost of sales consists of expenses associated with credit card processing, bandwidth, traffic acquisition, content amortization,
depreciation of property and equipment and related employee costs. Costs of sales declined in fiscal year 2012 as compared to the prior fiscal year primarily due to the impact of cost reduction
efforts.

Operating Expenses and Operating Loss

Operating expenses declined in fiscal year 2012 as compared to fiscal year 2011 due to cost reduction efforts. Employee, legal, and bad
debt expenses each declined by approximately $0.1 million during fiscal year 2012. The Direct-to-Consumer segment incurred operating losses of $0.5 million and
$1.1 million during the fiscal years ended March 31, 2012 and 2011, respectively.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (Continued)

Corporate Administration

The following table sets forth certain financial information for the Corporate Administration segment for each of the fiscal years
presented:

(In millions)
Year Ended March 31,

Percent Change

2012

2011

Operating expenses

$

7.3

$

9.5

(23

)%

Corporate
Administration segment expenses declined during fiscal year 2012 as compared to fiscal year 2011 due to (a) a $0.6 million decrease in employee and related costs
because an executive employee was reassigned to the Transactional TV segment's international sales force in Europe, and his costs are now reflected in that segment; (b) a $0.8 million
net decrease because our President resigned in August 2011, resulting in a decrease in employee and related costs; (c) a $0.4 million decrease in executive officer bonuses; and
(d) a $0.4 million decline in legal costs from fewer ordinary course litigation matters.

As
discussed elsewhere in this Form 10-K, we received several unsolicited indications of interest with respect to the acquisition of all of our outstanding shares of
common stock during fiscal year 2012 and thereafter. In connection with such indications of interest, our board of directors formed the Special Committee to conduct a review of the acquisition
proposals that had been received as well as other strategic alternatives that may be available to the Company. The review by the Special Committee is ongoing and the Special Committee has engaged
legal and financial advisors to assist them in this review. We cannot reasonably estimate the future costs associated with this process including, but not limited to, additional expenses for Special
Committee fees, legal and financial advisor fees, expenses incurred in connection with related legal proceedings, and other related expenses. However, we do expect to experience an increase in the
Corporate Administration segment expenses in fiscal year 2013 associated with these developments.

Other Income and Income Tax Benefit

Other Income

The following table sets forth certain financial information for other income for each of the fiscal years presented:

(In millions)
Year Ended March 31,

Percent Change

2012

2011

Other income

$

0.0

$

0.1

#

#

Represents
an increase or decrease in excess of 100%.

Amounts
included in other income primarily relate to net amounts from interest expense on our line of credit borrowings; interest expense on our uncertain tax positions; and interest
income from our cash and cash equivalents. Other income amounts in fiscal year 2012 were generally consistent with the amounts reported in fiscal year 2011.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (Continued)

Income Tax Benefit

The following table sets forth certain financial information for the income tax benefit for each of the fiscal years presented:

(In millions)
Year Ended March 31,

Percent Change

2012

2011

Income tax benefit

$

1.2

$

0.3

#

#

Represents
an increase or decrease in excess of 100%.

During
the first quarter of fiscal year 2012, we abandoned our majority ownership in an entity that was established to develop new channel services. As a result, we incurred a capital
loss for income tax purposes and recorded a corresponding long-term deferred tax asset to reflect the net tax effect of the temporary difference between the carrying amount of the asset
for financial reporting purposes and income tax purposes. We also established a valuation allowance of approximately $0.1 million based on an evaluation of objective evidence and our estimate
that none of the deferred tax asset would be realized in the future. The establishment of the valuation allowance was reflected as a $0.1 million increase in the income tax expense during
fiscal year 2012. During the third quarter of fiscal year 2012, the statute of limitations expired on approximately $0.1 million of uncertain tax position liabilities. As a result, we recorded
a $0.1 million reduction in our income tax expenses. Additionally, we increased our income tax expense during fiscal year 2012 by approximately $0.2 million in connection with
differences between certain estimates used for our tax provision expense for financial reporting purposes and the actual amounts used for income tax return purposes. No other unusual discrete items
had a material impact on our tax rate during fiscal year 2012.

During
the third quarter of fiscal year 2011, the statute of limitations expired on approximately $0.2 million of uncertain tax position liabilities. As a result, we recorded a reduction
in our income tax expense of $0.2 million. Additionally, we increased our income tax expense during fiscal year 2011 by approximately $0.1 million in connection with differences between
certain estimates used for our tax provision expense for financial reporting purposes and the actual amounts used for income tax return purposes. No other unusual discrete items had a material impact
on our tax rate during fiscal year 2011.

See
Note 9Income Taxes within the Notes to Consolidated Financial Statements for additional information on our income taxes.

LIQUIDITY AND CAPITAL RESOURCES

Our current priorities for the use of our cash and cash equivalents are:



investments in processes intended to improve the quality and marketability of our products;



funding our operating and capital requirements; and



funding, from time to time, opportunities to enhance shareholder value, whether in the form of repurchases of shares of
our common stock, cash dividends or other strategic transactions.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (Continued)

We anticipate that our existing cash, cash equivalents and cash flows from operations will be sufficient during the next 12 months to satisfy our operating requirements. We also
anticipate that we will be able to fund our estimated outlay for capital expenditures, repayment of outstanding debt and other related
purchases that may occur during the next 12 months through our available cash, cash equivalents and our expected cash flows from operations during that period.

In
summary, our cash flows from continuing operations were as follows:

(In millions)
Year Ended
March 31,

2012

2011

Net cash provided by operating activities of continuing operations

$

2.4

$

7.6

Net cash used in investing activities of continuing operations

(4.1

)

(5.0

)

Net cash used in financing activities of continuing operations

(4.0

)

(1.0

)

Cash Flows from Operating Activities of Continuing Operations

Cash provided by operating activities of continuing operations during fiscal year 2012 as compared to fiscal year 2011 was primarily
impacted by the following:



a decrease in cash flows from lower operating income (excluding the impact of goodwill and asset impairment charges)
primarily associated with the Transactional TV segment's performance;



a decrease in cash flows because the fiscal year 2011 results benefited from cash inflows associated with the completion
of producer-for-hire and episodic series arrangements, and no similar cash inflows occurred in fiscal year 2012;



a $1.6 million comparable decrease in cash flows due to cash outflows for film costs primarily related to an
episodic series that is expected to be delivered in fiscal year 2013; and



a $3.8 million comparable increase in cash flows as reflected in the change in other assets and liabilities
accounts primarily from payments received from the landlord of our new corporate facility associated with a tenant improvement allowance and certain unsettled customer receipts.

During
fiscal year 2012, we executed an agreement to produce and deliver a 13 episode series for a premium movie channel customer. We had cash outflows from the production of
approximately $1.6 million during fiscal year 2012, and we do not expect to incur additional meaningful cash outflows for the production in the future. We also expect to recognize revenue and
collect approximately $2.3 million from the production during fiscal year 2013.

Cash
from operating activities during fiscal year 2012 was significantly higher as compared to the related operating loss incurred primarily as a result of non-cash goodwill,
asset impairment and other charges as well as cash disbursements incurred for a Film Production segment episodic series production. Cash provided by operating activities of continuing operations
during fiscal year 2011 was significantly higher as compared to the related operating loss incurred due to the impact of non-cash asset impairment and other charges as well as the
collection of cash from the completion of an episodic series production and producer-for-hire services. The production cash outflows for these arrangements occurred in the
prior fiscal year.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (Continued)

Cash Flows from Investing Activities of Continuing Operations

Cash from investing activities of continuing operations during fiscal year 2012 included $4.0 million of cash used to purchase
property and equipment. Approximately $2.5 million of the cash outflows related to building improvements incurred for a new leased facility, and approximately $0.8 million of the cash
outflows related to equipment purchased in connection with our move to the new leased facility. We do not expect to incur additional cash outflows for the new leased facility. We also purchased
approximately $0.7 million in equipment associated with our general technology infrastructure.

Cash
from investing activities of continuing operations during fiscal year 2011 included $5.0 million of cash used to purchase property and equipment. Approximately
$1.3 million of the cash outflows relate to building improvements incurred for our new leased facility. The remaining cash outflows for property and equipment were incurred primarily to
purchase storage, transponder receiver, and other broadcast and distribution equipment. The storage and other broadcast and distribution equipment was purchased to support the Transactional TV
segment's international growth and expanded domestic content distribution. The transponder receiver equipment was purchased to supplement a change in the Transactional TV segment's transponder
services, which was incurred in an effort to stabilize or reduce domestic transponder costs in the future.

Cash Flows from Financing Activities of Continuing Operations

Net cash used in financing activities of continuing operations during fiscal year 2012 consisted of $3.5 million of cash used to
repurchase approximately 3.0 million shares of common stock at an average purchase price of $1.17 per share, $0.4 million of cash used to reduce the outstanding principal of our line of
credit, and $0.1 million in payments for long-term seller financing related to our purchase of a patent.

Net
cash used in financing activities of continuing operations during fiscal year 2011 consisted of $0.5 million of cash used to reduce the outstanding principal of our line of
credit, $0.4 million of cash used to repurchase approximately 0.2 million shares of common stock at an average purchase price of $1.57 per share, and $0.1 million in payments for
long-term seller financing related to our purchase of a patent.

Stock Repurchase

In August 2009, we announced that our board of directors adopted a stock repurchase program. Under the program, we could repurchase
with available cash and cash from operations up to 1.0 million shares of our outstanding common stock, from time to time through open market or privately negotiated transactions, as market and
business conditions permitted. The program was scheduled to expire in March 2012. During the fiscal years ended March 31, 2011 and 2010, we repurchased approximately 0.2 million shares
and 0.1 million shares of common stock, respectively, under the stock repurchase plan for total purchase prices of approximately $0.4 million and $0.1 million, respectively.
During the three month period ended September 30, 2011, we substantially completed the stock repurchase program by acquiring approximately 0.7 million shares of common stock for a total
purchase price of approximately $0.9 million.

In
October 2011, our board of directors authorized an extension of the August 2009 stock repurchase program. The extension allowed for an additional repurchase of up to
0.8 million shares of common stock, in an amount not to exceed in aggregate $1.0 million, exclusive of any fees, commissions or other expenses related to such repurchases. The program
was scheduled to expire on

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (Continued)

March 31,
2014, if not completed sooner. During the three month period ended December 31, 2011, we repurchased approximately 0.2 million shares of common stock under the extended
stock repurchase program for a total purchase price of approximately $0.3 million. In December 2011, the board of directors also authorized an individual repurchase of approximately
2.1 million shares of common stock through an open market transaction. The total purchase price of the shares was approximately $2.4 million, and the stock repurchase program that was extended
in October 2011 was concluded as a result of the transaction.

Borrowing Arrangements

On December 13, 2011, we extended our $5.0 million line of credit dated December 15, 2010. We renewed the line of
credit through December 15, 2012. The line of credit is secured by certain accounts receivable assets and bears interest at the greater of (a) the current prime rate less
0.125 percentage points per annum, or (b) 5.75% per annum. The line of credit may be drawn from time to time to support our operations and short-term working capital needs,
if any. A loan origination fee of 0.5% of the available line was paid upon the execution of the line of credit and is being amortized over the life of the line of credit. The line of credit includes a
maximum borrowing base equal to the lesser of 75% of certain accounts receivable assets securing the line of credit or $5.0 million, and the maximum borrowing base as of March 31, 2012
was $4.7 million. The average outstanding line of credit principal balance for fiscal year 2012 was $0.1 million, and the average outstanding line of credit principal balance for fiscal
year 2011 was $1.0 million. The interest rate on our line of credit during fiscal year 2012 was 5.75%.

The
line of credit contains both conditions precedent that must be satisfied prior to any borrowing and affirmative and negative covenants customary for facilities of this type,
including without limitation, (a) a requirement to maintain a current asset to current liability ratio of at least 1.5 to 1.0, (b) a requirement to maintain a total liability to tangible
net worth ratio not to exceed 1.0 to 1.0, (c) prohibitions on additional borrowing, lending, investing or fundamental corporate changes without prior consent, (d) a prohibition on
declaring, without consent, any dividends, other than dividends payable in our stock, and (e) a requirement that there be no material adverse change in our current client base as it relates to
our largest clients. The line of credit provides that an event of default will exist in certain circumstances, including without limitation, our failure to make payment of principal or
interest on borrowed amounts when required, failure to perform certain obligations under the line of credit and related documents, defaults in certain other indebtedness, our insolvency, a change in
control, any material adverse change in our financial condition and certain other events customary for facilities of this type. As of March 31, 2012, our outstanding principal balance under the
line of credit was $0.1 million, and we were in compliance with the related covenants.

Historically,
we have made borrowings under the line of credit to ensure we maintained a high level of liquidity through the continued global economic downturn and to ensure the funds
were available if needed. Although we borrowed funds under the line of credit to strengthen our liquidity, we have maintained cash and cash equivalent balances and generated positive cash flows from
operations that are more than sufficient to support our working capital and capital expenditure needs. We do not currently have plans to make significant strategic investments; however, we believe the
availability of funds through the line of credit provides us with additional flexibility when considering strategic investments.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (Continued)

CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS

Contractual Obligations

The following table reflects our contractual cash obligations as of March 31, 2012 for each of the fiscal year time periods
specified (amounts may not sum due to rounding):

Payments Due by Period (In millions):

Contractual Obligations

Total

2013

2014 - 2015

2016 - 2017

2018 and thereafter

Operating lease obligations

$

13.9

$

2.0

$

3.7

$

2.7

$

5.5

Vendor obligations

10.6

4.2

3.8

2.0

0.5

Line of credit

0.1

0.1







Interest payments

0.0

0.0







Employment contract obligations

6.3

3.3

3.0





Total

$

30.9

$

9.6

$

10.5

$

4.7

$

6.0

During
the first quarter of fiscal year 2013, we entered into an extended non-cancellable employment contracts with certain key employees. These employment
contracts expire through April 4, 2014. The impact of the execution and extension of the employment contracts was an increase in our commitments under the obligations of approximately
$1.7 million and $0.4 million during the fiscal years ending March 31, 2013 and 2014, respectively. Additionally, we terminated an employment contract of a key employee in
May 2012, which resulted in a decrease in our commitments under the obligations of approximately $0.2 million for each of the fiscal years ending March 31, 2013 and 2014. During the
first quarter of fiscal year 2013, we also entered into an operating lease and vendor obligations through April 2012 and May 2013, respectively. The impact of the operating lease was an immaterial
increase to our commitments under the obligations for the fiscal year ending March 31, 2013. The impact of the vendor obligations was an increase to our commitments under the obligations of
approximately $1.4 million and $0.1 million for the fiscal years ending March 31, 2013 and 2014, respectively.

For
the purposes of this table, contractual obligations are defined as agreements that are enforceable and legally binding and that specify all significant terms, such as fixed or
minimum services to be purchased and the approximate timing of the transaction. Obligations to acquire specified quantities of movie license rights that are subject to the delivery of the related
movies are included in vendor obligations because we estimate that the movies will be delivered in the specified time periods based on historical experience with the movie studios. Operating lease
obligations also include estimated payments to landlords for real estate taxes, common area maintenance and related payments and are based on historical payments and estimated future payments.
Interest payments include anticipated interest obligations on our $0.1 million of outstanding principal from our line of credit and assume the amounts will remain outstanding through the
remaining term of the line of credit, December 15, 2012, at an interest rate of 5.75%.

We
maintain non-cancelable leases for office space and equipment under various operating leases. The leases for office space expire through January 2022 and contain annual
escalation clauses. Our Transactional TV segment has entered into direct lease agreements that expire through October 2013 with an unrelated party for the use of transponders to broadcast its channels
on satellites. We expect to have continued access to transponders subsequent to the expiration of the current leases. In some instances, we are subject to arbitrary refusal of the transponder service
by the service provider if that service provider determines that the content being transmitted by us is harmful to the service provider's name or business. Any such service disruption would
substantially and adversely affect our financial position and results of operations. We also bear the risk that the access of their networks to transponders may be restricted or denied if a
governmental authority commences an investigation

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (Continued)

concerning
the content of the transmissions. Additionally, cable operators may be reluctant to carry less edited or partially edited adult programming on their systems. If any of the above scenarios
occurred, it could adversely affect our financial position and results of operations. We had no equipment under capital lease as of March 31, 2012 or 2011.

From
time to time, we enter into arrangements with movie studios to acquire license rights for a fixed and/or minimum quantity of movies over various purchase periods as defined by the
agreements. Additionally, we are party to certain uplinking, transport and marketing services that contractually obligate us to receive services over specified terms as per these arrangements. We are
also obligated to make future payments associated with our purchase of patent rights. These contractual obligations are reflected in the above table as vendor obligations.

Off-Balance Sheet Arrangements

Our Film Production segment completed producer-for-hire services during fiscal year 2011 related to a movie
production in the state of Georgia. Based on the location of the production and other factors, we received certain transferable production tax credits in the state of Georgia. Subsequent to the
completion of the production, we entered into an agreement to sell the tax credits for a net purchase price of approximately $0.8 million. If the tax credits are recaptured, forfeited,
recovered or otherwise become invalid within a four year period subsequent to our sale of the tax credits, we have agreed to reimburse the buyer for the value of the invalid tax credits as well as any
interest, penalties or other fees incurred in connection with the loss of the tax credits. We believe the tax credits are valid and do not expect that we will be required to reimburse the buyer.

Other Contingencies

Uncertain Tax Positions

During fiscal year 2012, the statute of limitations expired on approximately $0.1 million of uncertain tax positions resulting
in a decline in the uncertain tax position balance as reflected in long-term taxes payable and a reduction in our income tax expense. The reduction in the uncertain tax position balance
also resulted in the reversal of approximately $14,000 in interest expense. The aggregate change in the uncertain tax position balance during fiscal year 2012 was as follows (in thousands):

Beginning balance as of April 1, 2011

$

118

Reversal of prior period tax position from expiration of statute of limitations

(118

)

Ending balance as of March 31, 2012

$



During
fiscal year 2011, the statute of limitations expired on approximately $0.2 million of uncertain tax positions resulting in a decline in the uncertain tax
position balance as reflected in long-term taxes payable and a reduction in income tax expense. The reduction in the uncertain tax position balance also resulted in the reversal of
approximately $35,000 in interest expense.

We
file U.S. federal, state and foreign income tax returns. During fiscal year 2012, the IRS initiated an audit of our fiscal year 2010 tax returns. We cannot currently make an
estimation of the possible outcome from the audit. With few exceptions, we are no longer subject to examination of our federal income tax returns for years prior to fiscal year 2009, and we are no
longer subject to examination of our state income tax returns for years prior to fiscal year 2008.

RECENT ACCOUNTING PRONOUNCEMENTS

See Recently Issued Accounting Pronouncements in Note 1Organization and Summary of Significant Accounting Policies
within the Notes to Consolidated Financial Statements.

Interest Rate Sensitivity. Changes in interest rates could impact our anticipated interest income on cash and cash equivalents. An
adverse change in
interest rates in effect as of March 31, 2012 would not have a material impact on our interest income or cash flows.

Changes
in interest rates could also impact the amount of interest we pay on borrowings under our line of credit. A 10% adverse change in the interest rates on borrowings under our line
of credit would not have a material impact on our interest expense or cash flows.

Foreign Currency Exchange Risk. We do not have material foreign currency exposure.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The consolidated financial statements of New Frontier Media, Inc. and its subsidiaries, including the notes thereto and the
report of independent accountants therein, commence at page F-2 of this Report and are incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Based on management's evaluation (with the participation of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO)), as of
the end of the period covered by this report, our CEO and CFO have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended (the Exchange Act)), are not effective as described below within the Management Report on Internal Control over Financial Reporting to provide
reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods
specified in SEC rules and forms, and is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely
decisions regarding required disclosure.

Management Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of
financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

Management
assessed our internal control over financial reporting as of March 31, 2012, the end of our fiscal year. Management based its assessment on criteria established in Internal ControlIntegrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management's
assessment included an evaluation of elements such as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control
environment.

Based
on the assessment, including the material weakness discussed below, management has concluded that our internal control over financial reporting was not effective as of
March 31, 2012 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external reporting purposes in
accordance with U.S. generally accepted
accounting principles. We reviewed the results of management's assessment with the audit committee of our board of directors.

In
connection with the fiscal year ended March 31, 2012 evaluation of disclosure controls and procedures, management concluded it had a material weakness related to the accounting
for our provision for income taxes and specifically, an absence of sufficient reconciliation processes to substantiate our current and deferred tax balances. As a result of this material weakness, we
identified overstatement errors in income tax expense incurred in fiscal years prior to the fiscal year ended March 31, 2011 totaling $587,000. We assessed the impact of these errors on prior
annual and interim periods. Based on this assessment, we concluded that the errors did not result in a material misstatement of prior periods, but the correction of the cumulative impact in the fiscal
year ended March 31, 2012 would be material. To correct these errors relating to the prior year provision for income taxes, we therefore reduced accumulated deficit as of April 1, 2010
by $587,000 and recorded corresponding revisions to the fiscal year ended March 31, 2011 deferred tax balances.

A
material weakness is a deficiency, or combination of deficiencies, that result in a reasonable possibility that a material misstatement of a company's annual or interim financial
statements will not be prevented or detected on a timely basis. While the identified material weakness did not result in a material misstatement to our consolidated financial statements, these
deficiencies could, if not remediated, result in a material misstatement of future consolidated financial statements.

Changes in Internal Control over Financial Reporting

The material weakness noted above was identified subsequent to our fiscal year ended March 31, 2012; therefore, there were no
changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by
this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In
order to remediate the material weakness in our financial reporting, we have implemented additional controls and procedures subsequent to the fiscal year ended March 31, 2012
over our accounting for the provision for income taxes. The additional review procedures include, but are not limited to, performing additional reconciliation procedures to ensure deferred tax
balances have been properly recorded, and routinely evaluating the performance and necessity of services from third party tax accounting specialists.

Our
remediation plan has been implemented; however, the above material weakness will not be considered remediated until the additional review procedures over the provision for income
taxes has been operating effectively for an adequate period of time. Management will consider the status of this remedial effort when assessing the effectiveness of the internal controls over
financial reporting and
other disclosure controls and procedures as of June 30, 2012. While management believes that the remedial efforts will resolve the identified material weakness, there is no assurance that
management's remedial efforts conducted to date will be sufficient or that additional remedial actions will not be necessary.

Inherent Limitations on Effectiveness of Controls

Our management, including the CEO and CFO, does not expect that our disclosure controls or our internal control over financial
reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute,

assurance
that the control system's objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered
relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not
occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future
periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

ITEM 9B. OTHER INFORMATION.

None.

PART III.

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Incorporated by reference to "Information about the Nominees" in the definitive proxy statement to be filed with the SEC relating to
the registrant's 2012 Annual Meeting of Shareholders.

Please
see "Executive Officers of the Registrant" in Part I, Item 1 of this form.

All
of our directors, officers and employees are subject to a Code of Business Conduct and Ethics, and our financial management, including our principal executive, financial and
accounting officers, are also subject to an additional Code of Ethics for Financial Management, each of which codes are available for review under the Corporate Governance link in the Investor
Relations portion of our website: www.noof.com. Any amendments to any of the provisions of the codes that are applicable to our principal executive,
financial or accounting officers and are required under applicable laws, rules and regulations to be disclosed publicly will be posted for review in the above identified area of our website, and any
waivers of such provisions or similar provisions applicable to our directors will be disclosed on Form 8-K as required by the Exchange Act, and the applicable rules of The Nasdaq
Stock Market, LLC.

ITEM 11. EXECUTIVE COMPENSATION.

The information required by this item will be included under the captions "Compensation Discussion and Analysis," "Compensation
Committee Report," "Summary Compensation Table," "Outstanding Equity Awards at Fiscal Year-End," "Potential Payments Upon Termination" and "Non-Employee Director Compensation
for Fiscal Year 2012" in the definitive proxy statement to be filed with the SEC relating to the registrant's 2012 annual Meeting of Shareholders and is incorporated herein by reference.

The information required by this item will be included under the captions "Security Ownership of Certain Beneficial Owners and
Management" and "Securities Authorized for Issuance Under Equity Compensation Plans" in the definitive proxy statement to be filed with the SEC relating to the registrant's 2012 annual Meeting of
Shareholders and is incorporated herein by reference.

The information required by this item will be included under the captions "Transactions with Related Persons" and "Director
Independence" in the definitive proxy statement to be filed with the SEC relating to the registrant's 2012 annual Meeting of Shareholders and is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

The information required by this item will be included under the captions "Fees Billed by Independent Registered Public Accounting
Firm" in the definitive proxy statement to be filed with the SEC relating to the registrant's 2012 annual Meeting of Shareholders and is incorporated herein by reference.

PART IV.

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

The following documents are filed as part of this report:

1) FINANCIAL STATEMENTS

The financial statements listed in the Table of Contents to Consolidated Financial Statements are filed as part of this report.

2) FINANCIAL STATEMENT SCHEDULES

All schedules have been included in the Consolidated Financial Statements, Notes thereto, or Supplemental Information Schedules.

3) EXHIBITS

Exhibit No.

Exhibit Description

3.01

Amended and Restated Articles of Incorporation of the Company, dated May 7, 2007(1)

3.02

Amended and Restated Bylaws of the Company, dated February 2, 2011(2)

4.01

Form of Common Stock Certificate(3)

4.02

Amended and Restated Rights Agreement between the Company and Corporate Stock Transfer, Inc., as rights agent, dated August 1, 1998(4)

4.03

Amendment to the Amended and Restated Rights Agreement between the Company and Corporate Stock Transfer, Inc., as rights agent, dated October 31, 2011(5)

4.04

Form of Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock, together with the related Form of Rights Certificate, included as Appendices A and B to the Amended
and Restated Rights Agreement incorporated by reference herein as Exhibit 4.02

Incorporated
by reference to the corresponding exhibit included in the Company's Current Report on Form 8-K filed on August 16,
2011 (File No. 000-23697).

(25)

Incorporated
by reference to the corresponding exhibit included in the Company's Quarterly Report on Form 10-Q filed on
February 13, 2012 (File No. 000-23697).

(26)

Incorporated
by reference to the corresponding exhibit included in the Company's Current Report on Form 8-K filed on April 3,
2012 (File No. 000-23697).

*

Denotes
management contract or compensatory plan or arrangement.

#

Confidential
portions of this agreement have been redacted pursuant to a confidential treatment request filed separately with the SEC.



Furnished,
not filed.



XBRL
(Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or
prospectus for purposes of sections 11 or 12 of the Securities Act, is deemed not filed for purposes of section 18 of the Exchange Act, and is otherwise not subject to liability under
these sections.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.

NEW FRONTIER MEDIA, INC.

By:

/s/ MICHAEL WEINER

Name:

Michael Weiner

Title:

Chief Executive Officer

Date:

July 19, 2012

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

We have audited the accompanying consolidated balance sheets of New Frontier Media, Inc. (a Colorado corporation) and
subsidiaries (collectively, the "Company") as of March 31, 2012 and 2011, and the related consolidated statements of operations, comprehensive loss,
total equity, and cash flows for the years then ended. Our audits of the basic financial statements included the financial statement schedule listed in the index appearing under Valuation and Qualifying
AccountsSchedule II. These financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal
control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of New Frontier Media, Inc. and
subsidiaries as of March 31, 2012 and 2011, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the
United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.

New Frontier Media, Inc. is a publicly traded holding company for its operating subsidiaries, which are reflected in the
Transactional TV, Film Production, Direct-to-Consumer and Corporate Administration segments.

Transactional TV Segment

The Transactional TV segment generates revenue by providing adult programming to cable multiple system operators (MSOs) and direct
broadcast satellite (DBS) providers. The Transactional TV segment is able to provide a variety of editing styles and programming mixes to a broad range of consumers. We earn a percentage of revenue,
or split, for each
video-on-demand (VOD), pay-per-view (PPV) or subscription that is purchased on customer platforms.

Film Production Segment

The Film Production segment derives revenue from: a) the production and distribution of original motion pictures including
erotic thrillers and horror movies (collectively, owned content), which is provided through MRG Entertainment, Inc.; b) the distribution of third party films where it acts as a sales
agent for the product (collectively, repped content), which is provided through Lightning Entertainment Group, Inc.; and c) the provision of contract film production services to major
Hollywood studios (producer-for-hire arrangements).

Direct-to-Consumer Segment

The Direct-to-Consumer segment generates revenue primarily by selling memberships to our adult consumer
websites. The Direct-to-Consumer segment also historically operated an internet protocol television (IPTV) set-top box business beginning in late fiscal year 2008.
We discontinued the IPTV operations in the fourth quarter of fiscal year 2010.

Corporate Administration Segment

The Corporate Administration segment includes all costs associated with the operation of the public holding company, New Frontier
Media, Inc., that are not directly allocable to the Transactional TV, Film Production or Direct-to-Consumer segments.

Noncontrolling Interests

During fiscal year 2011, we entered into an agreement to create an entity within the Transactional TV segment to develop new channel
services. We controlled a majority of the entity's common stock and included the accounts of the entity in our financial statements. The net loss applicable to the noncontrolling interests of the
entity was presented as net loss attributable to noncontrolling interests in the consolidated statements of operations and comprehensive loss, and the portion of the equity applicable to the
noncontrolling interests of the entity was presented as noncontrolling interests in the consolidated balance sheets and statements of total equity.

During
the first quarter of fiscal year 2012, we entered into an arrangement that resulted in the loss of our majority controlling interest in the entity's common stock. As a result, we
deconsolidated the entity, which resulted in an immaterial loss within the Transactional TV segment. As of June 30,

2011
the noncontrolling interest was valued at zero due to the speculative nature of the venture. During the fourth quarter of fiscal year 2012, we entered into an agreement to assign our remaining
shares. As of March 31, 2012 we have no remaining interests in the entity.

Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of New Frontier Media, Inc. and its wholly owned and majority
controlled subsidiaries (collectively herein referred to as New Frontier Media, we, our and other similar pronouns). All intercompany accounts, transactions and profits have been eliminated in
consolidation.

Use of Estimates

We are required to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and
accompanying notes. The accounting estimates that require our most significant, difficult and subjective judgments include:

the recognition and measurement of income tax expenses, assets and liabilities (including the measurement
of uncertain tax positions and valuation of deferred tax assets);



the assessment of film costs and the forecast of anticipated revenue (ultimate revenue), which is used to amortize film
costs;



the determination of the allowance for unrecoverable accounts, which reserves for certain recoupable costs and producer
advances that are not expected to be recovered;



the amortization methodology and valuation of content and distribution rights; and



the valuation of goodwill, other identifiable intangible and other long-lived assets.

We
base our estimates and judgments on historical experience and on various other factors that are considered reasonable under the circumstances, the results of which form the basis for
making judgments that are not readily apparent from other sources. Actual results could differ materially from these estimates.

Revisions

In connection with the completion of our fiscal year 2012 annual reporting, we identified overstatement errors in income tax expense
incurred in fiscal years prior to the fiscal year ended March 31, 2011 totaling $587,000. We assessed the impact of these errors on prior annual and interim periods. Based on this assessment,
we concluded that the errors did not result in a material misstatement of prior periods, but the correction of the cumulative impact in the fiscal year ended March 31, 2012 would be material.
To correct these errors relating to the prior year provision for

income
taxes, we therefore revised the March 31, 2011 balance sheet as follows (amounts in thousands):

Decrease in taxes receivable

$

(52

)

Increase in long term deferred tax assets

633

Decrease in short term deferred tax liabilities

2

Increase in long term taxes payable

(2

)

Increase in accumulated other comprehensive loss

6

Decrease in accumulated deficit as of April 1, 2010

$

587

Our
assessment of the revisions discussed above considered the guidance provided by Accounting Standards Codification (ASC) Topic 250, Accounting Changes
and Error Corrections; ASC Topic 250-10-S99-1, Assessing Materiality; and ASC
Topic 250-10-S99-2, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements. Based on our conclusion that the errors were not material individually or in aggregate to any of the prior reporting periods, we determined amendments to previously
filed financial statement reports were not required in accordance with the applicable ASC guidance. We also concluded that the revisions applicable to prior periods should be reflected herein and will
be reflected in future filings containing such information.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, cash in financial institutions and cash equivalents, which are highly liquid investment
instruments with original maturities of less than 90 days. We had approximately $0.1 million of cash held in foreign financial institutions as of March 31, 2012.

Restricted Cash

Restricted cash during the periods presented includes amounts that are contractually restricted in connection with agreements between
us and certain film producers.

Federal Deposit Insurance Limits

We maintain cash deposits with financial institutions that exceed federally insured limits. As of March 31, 2012, we exceeded
the federally insured limits by approximately $12.8 million. We periodically assess the financial condition of the institutions and estimate that the risk of any loss from uninsured deposits is
low.

Fair Value of Financial Instruments

The carrying amounts of financial instruments, including cash, cash equivalents, accounts receivable, accounts payable, accrued
liabilities, short-term debt, and certain other current assets and liabilities approximate fair value because of their generally short maturities. See Note 4Fair Value
Measurements for additional detail and discussion.

The majority of our accounts receivable are due from customers in the cable and satellite industries and from the film distribution
industry. Credit is extended based on an evaluation of a customer's financial condition and collateral is not required. Accounts receivable are stated at amounts due from customers less an allowance
for doubtful accounts. Customer balances that
remain outstanding longer than the contractual payment terms are considered past due. We determine our allowance for doubtful accounts on a quarterly basis by considering a number of factors,
including the length of time accounts receivable are past due, our previous loss history, the customer's current ability to pay its obligation to us, and the condition of the general economy and the
cable, satellite and film distribution industries as a whole. Bad debt is reflected as a component of operating expenses in the consolidated statements of operations. When a specific account
receivable is determined to be uncollectible, we reduce both our accounts receivable and allowance for doubtful accounts accordingly.

Accounts
receivable balances associated with the Film Production segment's repped content include the entire license fee due to us from the licensee. Amounts collected for these
receivables may be disbursed to us and/or the producers of the licensed films in accordance with the terms of the related producer agreements.

Accrued and Other Liabilities

Accrued and other liabilities included approximately $0.7 million and $0.5 million of accrued insurance premiums as of
March 31, 2012 and 2011, respectively, and unsettled customer receipt liabilities of $1.0 million as of March 31, 2012. There were no material unsettled customer receipt
liabilities as of March 31, 2011.

Other Long-Term Liabilities

Other long-term liabilities included approximately $1.4 million and $0.4 million of incentive from lessor
liabilities as of March 21, 2012 and 2011, respectively.

Property and Equipment

Property and equipment are stated at historical cost less accumulated depreciation. The cost of maintenance and repairs to property and
equipment is expensed as incurred, and significant additions and improvements are capitalized. The capitalized costs of leasehold and tenant improvements are depreciated using a
straight-line method over the lesser of the estimated useful life of the assets or the expected term of the related leases. All other property and equipment assets are depreciated using a
straight-line method over the estimated useful
lives of the assets. As of March 31, 2012, the estimated useful lives of property and equipment were as follows:

The Transactional TV segment's content and distribution rights library primarily consists of licensed films. We capitalize the costs
associated with the content and distribution rights as well as certain editing and production costs and amortize these capitalized costs on a straight-line basis over the lesser of the
license term or estimated useful life (generally 5 years). The licenses typically provide for unlimited showings of the films as well as the right to extract scenes from the movie and use those
scenes to construct new, unique films with scenes from various other licensed films. The content and distribution rights costs are amortized on a straight-line basis over the related
license period or estimated useful life because the estimated number of showings cannot be reasonably determined and we expect that the films will generally generate revenue ratably over the related
license term.

We
periodically review the content library and assess whether our forecasts as it relates to the library's usefulness should be revised downward. In the event that we revise the
forecasts downward, it may also be necessary to write down the unamortized cost of the content and distribution rights to its estimated net realizable value. See Note 7Content and
Distribution Rights for additional detail and discussion on content and distribution rights impairment.

Recoupable Costs and Producer Advances

Recoupable costs and producer advances represent amounts paid by us that are expected to be subsequently recovered through the
collection of fees associated with the licensing of repped content. In connection with the Film Production segment's repped content operations, we enter into sales agency agreements whereby we act as
a sales agent for a producer's film (Sales Agency Agreements). These Sales Agency Agreements typically include provisions whereby certain costs that are incurred for promotion related activities will
be paid by us on behalf of the producer (such as movie trailer and advertising material costs). We may also pay the producer an advance for the related film prior to the distribution of such film. As
we subsequently license the producer's film and license fees are collected, the recoupable costs and producer advances are recovered by us through these license fee collections. License fees typically
are not paid to the producer of the related film until such recoupable costs and producer advances have been fully recovered.

Recoupable
costs and producer advances are stated at the amounts contractually recoverable through collection of future license fees, net of an allowance for unrecoverable accounts. The
allowance for unrecoverable accounts reflects any loss anticipated from unrecovered recoupable costs and producer advances. Charges to adjust the allowance for unrecoverable accounts are reflected as
a component of operating expenses in the consolidated statements of operations. We evaluate recoupable costs and producer advances on an individual film-by-film basis each
quarter based on a number of factors including our historical experience with charges to the allowance, estimates of future cash collections, estimates of future recoupable costs to be incurred, and
the condition of the general economy and film industry as a whole. During the fiscal years ended March 31, 2012 and 2011, we incurred charges related to the allowance for unrecoverable accounts
of approximately $0.6 million and $0.8 million, respectively.

We capitalize the Film Production segment's costs incurred for film production including costs to develop, acquire and produce films,
which primarily consist of salaries, equipment and overhead costs, as well as the cost to acquire rights to films. Film costs include amounts for completed films and films still in development.
Production overhead, a component of film costs, includes allocable costs of individuals or departments with exclusive or significant responsibility for the production of the films. Interest expense
associated with film costs is not capitalized because the duration of productions is short-term in nature. Films are typically direct-to-television in nature. Film
costs are stated at the lower of cost, less accumulated amortization, or fair value.

Capitalized
film costs are amortized as an expense within cost of sales using the film forecast method. Under this method, capitalized film costs are expensed based on the proportion of
the film's revenue recognized for such period relative to the film's estimated remaining ultimate revenue, not to exceed ten years. Ultimate revenue is the estimated total revenue expected to be
recognized over a film's useful life. Ultimate revenue for new films is typically estimated using actual historical performance of comparable films that are similar in nature (such as production cost
and genre). Film revenue associated with this method includes amounts from all sources on an individual-film-forecast-computation method. Estimates of ultimate revenue are
reviewed quarterly and adjusted if appropriate, and amortization is also adjusted on a prospective basis for such a change in estimate. Changes in estimated ultimate revenue could be due to a variety
of factors, including the proportional buy rates of the content as compared to competitive content as well as the level of market acceptance of the television product.

Film
costs are reviewed for impairment on a film-by-film basis each quarterly reporting period. We record an impairment charge when the fair value of the film is
less than the unamortized cost. Examples of events or circumstances that could result in an impairment charge for film costs include the underperformance of a film as compared to expectations or a
downward adjustment in the estimated future performance of a film due to an adverse change in the general business climate. See Note 8Film Costs for additional detail and
discussion on film cost impairments.

Goodwill and Other Identifiable Intangible Assets

We record goodwill when the purchase price of an acquisition exceeds the estimated fair value of the net identified tangible and
intangible assets acquired. Goodwill is tested for impairment at the operating segment level, which is equivalent to our reporting units, on an annual basis (March 31) and between annual tests
if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or
circumstances could include, but are not limited to, a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant
portion of a reporting unit. Application of the goodwill impairment test requires judgment in the determination of the fair value of each reporting unit. The fair value of each reporting unit is
estimated using considerations of various valuation methodologies which could include income and market valuation approaches. The income approach involves discounting the reporting unit's projected
free cash flow at its weighted average cost of capital, and the market approach considers comparable publicly traded company valuations and recent merger and acquisition valuations. The analysis
requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts; estimation of the long-term

rate
of growth; determination of the weighted average cost of capital; and other similar estimates. Changes in these estimates and assumptions could materially affect the determination of fair value
for each reporting unit. We allocate goodwill to each reporting unit based on the operating segment expected to benefit from the related acquisition and/or combination.

As
an overall test of the reasonableness of the estimated fair value of the reporting units and the consolidated Company, we also perform a reconciliation of the fair value estimates for
the reporting units to our market capitalization. The reconciliation considers a control premium based on merger and acquisition transactions within the media and entertainment industry and other
available information. A control premium is the amount that a buyer is willing to pay over the current market price of a company as indicated by the traded price per share (i.e., market
capitalization), in order to acquire a controlling interest. The premium is justified by the expected synergies, such as the expected increase in cash flow resulting from cost savings and revenue
enhancements.

Other
identifiable intangible assets subject to amortization have primarily included amounts paid to acquire non-compete agreements with certain key executives, contractual
and non-contractual customer relationships, intellectual property rights, patents and websites. These costs are capitalized and amortized on a straight-line basis over their
estimated useful lives, which is typically five years. Other identifiable intangible asset balances are removed from the gross asset and accumulated amortization amounts in the period in which they
become fully amortized or impaired and are no longer in use. For intellectual property and patents, the assets are not removed until our legal claim to the assets has expired. Other identifiable
intangible assets are reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In evaluating the fair value
and future benefits of such assets, we consider whether the estimated undiscounted future net cash flows of the individual assets are less than the related assets' carrying value and if so, we record
an impairment loss for the excess recorded carrying value of the asset as compared to its fair value. See Note 4Fair Value Measurements for additional detail and discussion on
other identifiable intangible asset impairments. See Note 5Goodwill and Other Identifiable Intangible Assets for additional detail and discussion on goodwill and other identifiable
intangible asset impairments.

Long-Lived Assets

We continually review long-lived assets that are held and used for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. In evaluating the fair value and future benefits of such assets, we consider whether the estimated undiscounted
future net cash flows of the individual assets are less than the related assets' carrying value and if so, we record an impairment loss for the excess recorded carrying value of the asset as compared
to its fair value. See Note 4Fair Value Measurements for additional detail and discussion on long-lived asset impairments.

Deferred Producer Liabilities

Deferred producer liabilities are recorded upon the billing of repped content license fees. Deferred producer liabilities represent
outstanding amounts due to the producer or that are to be retained by us upon the collection of license fee amounts related to the sale of repped content by the Film Production segment. In accordance
with the Sales Agency Agreements we enter into with repped content

producers,
when license fees associated with sales of repped content are collected, the amounts are paid to the producer and/or are retained by us. We retain amounts for sales agency commissions,
recovery of outstanding recoupable costs and producer advances (Recoupable Costs) or as market fee revenue. The terms of the Sales Agency Agreements provide that collected license fees are distributed
to the producer and/or are retained by us based on a specific allocation order as defined by each agreement. The allocation order is dependent on criteria including total license fee collections,
outstanding Recoupable Costs balances and certain other criteria as specified by the Sales Agency Agreements. As these criteria cannot be reasonably determined until the license fees are collected,
the appropriate allocation order of uncollected license fees cannot be established. Accordingly, the uncollected license fee amounts are recorded as deferred producer liabilities until such time as
the amounts are collected and the allocation order can be reasonably determined.

Revenue Recognition

Our revenue consists primarily of fees earned through the distribution of programming content through various media outlets including
PPV channels and VOD categories that are distributed on cable and DBS platforms, premium movie channels, pay and free television channels and other available media outlets. Generally, we recognize
revenue when the earnings process is complete as is typically evidenced by an agreement with the customer; services have been rendered or film delivery and acceptance is complete, if applicable; the
license period has commenced; and the fee is fixed or determinable and probable of being collected. The process involved in evaluating the appropriateness of revenue recognition involves judgment
including estimating monthly revenue based on historical data and determining collectability of fees.

Transactional TV Segment VOD and PPV Services

The Transactional TV segment's VOD and PPV revenue are recognized based on buys and monthly subscriber counts reported each month by
cable MSOs and DBS providers. We earn revenue by receiving a contractual percentage of the retail price paid by consumers of the content. Monthly sales information is not typically reported to the
Transactional TV segment until approximately 30 - 90 days after the month of service, which requires us to make monthly revenue estimates for the unreported months
based on the Transactional TV segment's historical experience with each customer. The revenue estimates may be subsequently adjusted to reflect the actual amount earned upon receipt of the monthly
sales reports.

Film Production Segment Owned Content Licensing

Revenue from the licensing of owned content is recognized when persuasive evidence of an arrangement exists, as is typically evidenced
through an executed contract; the delivery conditions of the completed film have been satisfied as required in the contract; the license period of the arrangement has begun; the fee is fixed or
determinable; and collection of the fees is reasonably assured. For agreements that involve the distribution of content through VOD and PPV services and retail markets, we are unable to determine or
reasonably estimate the revenue earned from customers in advance of receiving the reported earnings because the performance materially varies by film and from period to period. As a result, licensing
revenue from these arrangements is not recognized until the amounts are reported by the customers.

We recognize revenue from represented film licensing activities on a net basis as an agent. The revenue recognized for these
transactions represents the sales agency fee earned on the total content licensing fee. The producers' share of the licensing fee is recorded as a liability within the producers payable account until
the balance is remitted to the producer. For agreements that involve the distribution of content through VOD and PPV services and retail markets, we are unable to determine or reasonably estimate the
revenue earned from customers in advance of receiving the reported earnings because the performance materially varies by film and from period to period. As a result, licensing revenue from these
arrangements is not recognized until the amounts are reported by the customers.

The
agreements entered into with the producers may also provide for a marketing fee that can be earned by us. The marketing fee is stated as a fixed amount and is contractually earned
upon collection of sufficient film licensing fees as defined by the contract, the terms of which vary depending on film quality, distribution markets and other factors. We recognize marketing fees as
revenue when the amounts become determinable and the collection of the fee has occurred as defined by the respective contract.

Direct-to-Consumer Segment Membership Fees

Revenue from membership fees is recognized over the life of the membership. We record an allowance for refunds based on expected
membership cancellations, credits and chargebacks.

Multiple Element Transactions

From time to time, we enter into transactions involving multiple elements. These multiple element transactions can involve the
licensing of content (i.e., the licensing of multiple titles in a single agreement), the sale of content (i.e., the distribution of multiple titles in a single agreement), the sale of
content and contemporaneous purchase of advertising (i.e., receiving a revenue percentage from a cable MSO or DBS operator and purchasing advertising space on that same operator's platform in a
single agreement), or the licensing of content and contemporaneous purchase of advertising (i.e., licensing multiple titles and purchasing advertising space in a publication in a single
agreement). Multiple element transactions require the exercise of judgment in identifying the separate
elements in a bundled transaction as well as determining the values of the different elements. The judgments impact the amount of revenue and expenses recognized over the term of the contract, as well
as the period in which they are recognized.

We
account for multiple element transactions by first estimating the values of each element. We estimate the values by referring to quoted market prices, historical transactions or
comparable transactions and our best estimate of selling price. We then allocate the total consideration for the bundled transaction to each element based its proportional fair value.

Producer-for-Hire Arrangements

Our Film Production segment periodically acts as a producer-for-hire for customers. Through these arrangements,
we provide services and incur costs associated with the film production. We earn a fee

for
our services once the film has been delivered to the customer. We maintain no ownership rights for the produced content. Revenue for these arrangements is recognized when persuasive evidence of an
arrangement exists as evidenced by an executed contract, the film has been delivered to the customer in accordance with the contract terms, the fee is fixed and determinable and collection is
reasonably assured. The costs incurred for production in these arrangements are initially recorded as a deferred cost within the current assets section of the balance sheet, and the deferred costs are
subsequently recorded as cost of sales when we recognize revenue for the related services. During the fiscal year ended March 31, 2012, there were no costs or revenues associated with
producer-for-hire arrangements. During the fiscal year ended March 31, 2011, we completed and recognized revenue on producer-for-hire
arrangements of $4.0 million.

Advertising Costs

We expense advertising costs, which includes tradeshow and promotional related expenses, as incurred. Advertising costs during the
fiscal years ended March 31, 2012 and 2011 were approximately $1.7 million and $2.4 million, respectively.

Research and Development Costs

Costs related to the research, design and development of products are charged to research and development expense as incurred. We did
not incur any material research and development costs related to continuing operations during the fiscal years ended March 31, 2012 and 2011. Research and development costs related to
discontinued operations during the fiscal year ended March 31, 2012 and 2011 were immaterial.

Employee Equity Incentive Plans

We have an employee equity incentive plan, which is described more fully in Note 3Employee Equity Incentive Plans.
Employee equity awards are accounted for under the fair value method. Accordingly, we measure share-based compensation at the grant date based on the fair value of the award. We use the
straight-line attribution method to expense the fair value of the award over the related service period.

We
use the Black-Scholes option pricing model to estimate the fair value of options granted. Volatility assumptions are derived using historical volatility data. The expected term data
is stratified between officers and non-officers and determined using the weighted average exercise behavior for these two groups of employees. The dividend yield assumption is based on
estimates of dividends to be declared in the future. Share-based compensation expense is based on awards ultimately expected to vest, reduced for estimated forfeitures. Forfeiture rates are estimated
at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeiture rates are estimated based on historical experience and are
stratified between officers and non-officers.

Income Taxes

We make certain estimates and judgments in determining the income tax benefit. These estimates and judgments are used in the
determination of tax credits, benefits and deductions, uncertain tax positions, and the calculation of certain tax assets and liabilities which are a result of differences in the

timing
of the recognition of revenue and expense for tax and financial statement purposes. We also use estimates and judgments in determining interest and penalties on uncertain tax positions.
Significant changes to these estimates could result in a material change to the income tax benefit in subsequent periods.

We
are required to evaluate the likelihood that we will be able to recover deferred tax assets, which requires us to make certain estimates and judgments. We establish valuation
allowances when, based on an evaluation of available evidence, there is a likelihood that some portion or all of the deferred tax assets will not be realized. This evidence may include, but is not
limited to, our historical operating results, the nature of the deferred tax assets, and our projected future operating results. During the first quarter of fiscal year 2012, we determined that it was
more likely than not that deferred tax assets associated with certain capital losses would not be realized and recorded a valuation allowance of $0.1 million for the full capital loss deferred
tax asset. The valuation allowance resulted in an increase in our income tax expense of $0.1 million during the first quarter of fiscal year 2012. We have no other material deferred tax asset
valuation allowances and estimate that all other deferred tax assets will be recoverable. If these estimates were to change and the assessment indicated we would be unable to recover certain deferred
tax assets, we would increase the income tax expense in the period of the change in estimate.

Our
income tax assessment involves dealing with uncertainties in the application of tax regulations. We account for uncertain tax positions using a two-step approach to
recognizing and measuring uncertain tax position liabilities. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is
more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest
amount that is more than 50% likely of being realized upon ultimate settlement. This process is based on various factors including, but not limited to, changes in facts and circumstances, changes in
tax law, settlement of issues under audit, and new audit activity. Changes to these factors and estimates regarding these factors could result in the recognition of an income tax benefit or an
additional charge to the income tax expense.

Loss per Share

Basic loss per share is computed on the basis of the weighted average number of common shares outstanding. Diluted loss per share is
computed on the basis of the weighted average number of common shares outstanding plus the potential dilutive effect of outstanding warrants and stock options. There is no dilutive effect included on
the diluted loss per share in periods of loss from outstanding warrants or stock options because inclusion of these items would be antidilutive.
Potentially dilutive common shares outstanding were approximately 2.4 million and 2.2 million for the fiscal years ended March 31, 2012 and 2011, respectively.

Comprehensive Loss

The comprehensive loss includes all changes in equity during the period from non-owner sources. During the periods presented,
comprehensive loss includes our net loss and the cumulative adjustment from foreign currency translation.

The functional currency for all of our U.S. based subsidiaries is the U.S. dollar. The functional currency for our foreign subsidiaries
is the local currency. Assets and liabilities denominated in foreign currencies are translated using the exchange rates on the balance sheet dates. Revenues and expenses are translated using the
average exchange rates prevailing during the periods presented. Any translation adjustments resulting from this process are shown separately as a component of accumulated other comprehensive loss
within the equity section of the consolidated balance sheets. Foreign currency transaction gains and losses are reported in the operating expenses section of the consolidated statements of operations.

Recently Issued Accounting Pronouncements

From time to time, new accounting pronouncements are issued that we adopt as of the specified effective date. We believe that the
impact of recently issued standards that are not yet effective will not have a material impact on our results of operations and financial position.

Fair Value MeasurementIn April 2011, the Financial Accounting Standards Board (FASB) issued new guidance to achieve common fair value measurement and
disclosure requirements between U.S. generally accepted accounting principles and International Financial Reporting Standards. This new guidance amends current fair value measurement and
disclosure guidance to include increased transparency around valuation inputs and investment categorization. This new guidance is effective for fiscal years and interim periods beginning after
December 15, 2011. The adoption of the new guidance did not have an impact on our consolidated financial position, results of operations or cash flows.

Comprehensive IncomeIn June 2011, the FASB issued new guidance on the presentation of comprehensive income. Specifically, the new guidance allows an
entity to present components of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive
statements. The new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. While the new guidance changes the
presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance. This new guidance is
effective for fiscal years and interim periods beginning after December 15, 2011. The adoption of the new guidance did not have an impact on our consolidated financial position, results of
operations or cash flows.

Testing for Goodwill ImpairmentIn September 2011, the FASB issued authoritative guidance that allows an entity to use a qualitative approach to test
goodwill for impairment. Under this guidance, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that
it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more
likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. In addition, an entity has the option
to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step goodwill impairment test. The adoption of the
new guidance did not have an impact on our consolidated financial statements.

The components of basic and diluted loss per share from continuing operations attributable to New Frontier Media, Inc. shareholders for the fiscal years ended March 31 were
as follows (in thousands, except per share data):

We adopted the New Frontier Media, Inc. 2010 Equity Incentive Plan (the 2010 Plan) in August 2010. The 2010 Plan replaces the
New Frontier Media, Inc. 2007 Stock Incentive Plan. The 2010 Plan was approved by our shareholders, and the purpose of the 2010 Plan is to encourage the further growth and development of the
Company by providing equity and related awards to selected directors and employees. The 2010 Plan is also intended to assist in attracting and retaining employees and directors, to optimize
profitability and to promote teamwork. Under the 2010 Plan, employees and directors may be granted incentive stock options, restricted stock, bonus stock and other awards, or any combination thereof.
There were 1,250,000 shares of our common stock originally authorized for issuance under the 2010 Plan and the maximum number of shares of common stock that may be subject to one or more awards
granted to a participant during any calendar year is 312,500. Awards granted under the 2010 Plan that subsequently are forfeited or cancelled may be reissued under the provisions of the 2010 Plan.
Awards may be granted to employees and non-employee directors with exercise prices equal to, or in excess of, the fair market value of the underlying common stock at the date of grant.
Generally, the stock options vest ratably over a four-year period and expire ten years from the date of grant. As of March 31, 2012, there were 0.5 million shares available
for issuance.

The weighted average estimated fair value of stock option grants and the weighted average assumptions that were used in calculating
such values for the fiscal years ended March 31 were as follows:

2012

2011

Weighted average estimated fair value per award

$

0.83

$

0.77

Expected term from grant date (in years)

6

5

Risk free interest rate

2.5

%

2.0

%

Expected volatility

54

%

56

%

Expected dividend yield



%



%

Share-based
compensation expense recognized in the consolidated statements of operations is based on awards ultimately expected to vest, which considers estimated forfeitures.
Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. We recognize the expense or benefit from the effect
of adjusting the estimated forfeiture rate in the period that the forfeiture estimate changes. The effect of forfeiture adjustments during the fiscal years ended March 31, 2012 and 2011 was to
reduce the related compensation expense by approximately $0.3 million and $0.2 million, respectively.

The
following table summarizes the effects of share-based compensation from continuing operations resulting from options granted under our equity incentive plans for the fiscal years
ended March 31. This expense from continuing operations was included in cost of sales, sales and marketing expenses, and general and administrative expenses (in thousands, except per share
amounts):

2012

2011

Share-based compensation expense before income taxes

$

608

$

608

Income tax benefit

(207

)

(213

)

Total share-based compensation expense after income tax benefit

$

401

$

395

Share-based compensation effects on basic and diluted loss per common share

Stock
option transactions during the fiscal year ended March 31, 2012 are summarized as follows:

Stock Options

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Term (Years)

Aggregate
Intrinsic
Value(1)
(in thousands)

Outstanding as of March 31, 2011

2,171,177

$

5.17

Granted

905,000

2.05

Forfeited/expired

(979,225

)

4.63

Outstanding as of March 31, 2012

2,096,952

4.08

6.7

$



Options exercisable as of March 31, 2012

1,272,577

5.16

5.4



Options vested and expected to vestnon-officers

1,323,593

4.47

6.3



Options vested and expected to vestofficers

661,274

3.63

7.0



(1)

The
aggregate intrinsic value represents the difference between the exercise price and the value of New Frontier Media, Inc. stock at the time of
exercise or at the end of the period if unexercised.

As
of March 31, 2012, there was approximately $0.2 million of total unrecognized compensation costs for each of the non-officers and officers, respectively,
related to stock option grants. The unrecognized compensation costs for non-officers and officers are expected to be recognized over a weighted average period of two years and one year,
respectively.

NOTE 4FAIR VALUE MEASUREMENTS

The hierarchy below lists the three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. Fair value measurements are
categorized in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels
are:



Level 1inputs are based upon unadjusted quoted prices for identical instruments traded in active
markets.



Level 2inputs are based upon quoted prices for similar instruments in active markets, quoted prices
for identical or similar instruments in markets that are not active, and model-based valuation techniques (such as a Black-Scholes model) for which all significant inputs are observable in the market
or can be corroborated by observable market data for substantially the full term of the assets or liabilities.



Level 3inputs are generally unobservable and typically reflect management's estimates of assumptions
that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow
models.

We measure certain assets, such as goodwill, film costs and other identifiable intangible assets, at fair value on a nonrecurring basis
when they are deemed to be impaired. The fair values are determined based on valuation techniques using the best information available and may include quoted market prices, market comparables, and
discounted cash flow projections. An impairment charge is recorded when the cost of the asset exceeds its fair value. The following table presents the assets measured at fair value on a nonrecurring
basis as of March 31, 2012 (in thousands):

Level 1

Level 2

Level 3

Net Fair
Value

Goodwill(1)

$



$



$



*

$



Film costs(2)





6

6

Other long-lived assets(3)





100

100

*

Fair
values were measured using Level 3 inputs, and the fair values were zero.

Measurement
relates to the Film Production segment film cost impairment analysis. See Note 8Film Costs for additional discussion.

(3)

Measurement
relates to the Transactional TV segment other long-lived assets. The recorded carrying value of an asset was reduced to its
estimated fair value based on management's estimates of assumptions that market participants would use in pricing the asset. As a result, we recorded a $0.1 million impairment charge within the
charge for asset impairments other than goodwill line item in the consolidated statements of operations.

The
following table presents the assets measured at fair value on a nonrecurring basis as of March 31, 2011 (in thousands):

Level 1

Level 2

Level 3

Net Fair
Value

Film costs(1)

$



$



$

354

$

354

Other identifiable intangible assets(2)







*



Other long-lived assets(3)





200

200

*

Fair
values were measured using Level 3 inputs, and the fair values were zero.

(1)

Measurement
relates to the Film Production segment film cost impairment analysis. See Note 8Film Costs for additional discussion.

(2)

Measurement
relates to the Direct-to-Consumer segment websites. See Note 5Goodwill and Other Identifiable
Intangible Assets for additional discussion.

(3)

Measurement
relates to the Transactional TV segment other long-lived assets. The recorded carrying value of an asset was reduced to its
estimated fair value based on management's estimates of assumptions that market participants would use in pricing the

asset.
As a result, we recorded a $0.1 million impairment charge within the charge for asset impairments other than goodwill line item in the consolidated statements of operations.

NOTE 5GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS

Goodwill

Goodwill is classified within the segment that employs the goodwill in its operations. As of March 31, 2010, the Transactional
TV segment was the only operating segment that reported goodwill. Changes in the carrying amount of the Transactional TV segment's goodwill during the fiscal years ended March 31, 2012 and 2011
were as follows (in thousands):

Balance as of March 31, 2010

$

3,743

Balance as of March 31, 2011

3,743

Impairment

(3,743

)

Balance as of March 31, 2012

$



Fiscal Year 2012 Impairment Testing

We performed an annual impairment test on the Transactional TV segment's goodwill as of March 31, 2012 and engaged a third party
valuation firm to assist with the test. The income and market valuation approaches were considered in determining the estimated fair value of the segment. The income valuation approach was more
heavily weighted than the market valuation approach because (a) there was a lack of comparable public companies to consider for the market valuation approach, and (b) the income
valuation approach was more representative of our unique operating performance characteristics relative to the comparable companies considered in the market valuation approach. The results of the
analysis indicated the estimated fair value of the segment was less than the carrying value. We then performed additional analysis to estimate the implied fair value of goodwill. Based on this
analysis, we recorded a goodwill impairment charge of $3.7 million to reduce the Transactional TV segment's goodwill from $3.7 million to the implied fair value of goodwill of zero. The
Transactional TV segment's performance during fiscal year 2012 was unfavorable relative to our expectations due to the impact of increased competition from free and low-cost internet
websites as well as a continuation of lower consumer purchases of our content due to the global economic downturn. Based on our assessment of the fiscal year 2012 underperformance and certain other
industry factors, we adjusted downward our five year forecast for the segment. These downward adjustments resulted in the goodwill impairment charge for the segment.

Fiscal Year 2011 Impairment Testing

We performed an annual impairment test on the Transactional TV segment's goodwill as of March 31, 2011 and engaged a third party
valuation firm to assist with the test. The income and market valuation approaches were considered in determining the estimated fair value of the segment. The income valuation approach was more
heavily weighted than the market valuation approach because (a) there was a lack of comparable public companies to consider for the market valuation approach, and (b) the income
valuation approach was more representative of our unique operating performance

characteristics
relative to the comparable companies considered in the market valuation approach. The results of the analysis did not indicate any goodwill impairment for the Transactional TV segment.

Other Identifiable Intangible Assets

Other identifiable intangible assets that are subject to amortization as of March 31 were as follows (in thousands, except
weighted average useful life):

2012

2011

Weighted
Average
Useful Life
(Years)

Gross
Carrying
Amounts

Accumulated
Amortization

Impairment

Net

Gross
Carrying
Amounts

Accumulated
Amortization

Impairment

Net

Intellectual property

5

$

540

$

(126

)

$

(414

)

$



$

540

$

(126

)

$

(414

)

$



Websites

5

91

(54

)

(37

)



91

(54

)

(37

)



Patents

5

460

(107

)

(353

)



460

(107

)

(353

)



Other

6

143

(47

)



96

87

(42

)



45

$

1,234

$

(334

)

$

(804

)

$

96

$

1,178

$

(329

)

$

(804

)

$

45

Amortization
expense for other identifiable intangible assets subject to amortization during the fiscal year ended March 31, 2011 was approximately $0.6 million.
Amortization expense for other identifiable intangible assets subject to amortization during the fiscal year ended March 31, 2012 was immaterial. On an annual basis, amortization expense for
other identifiable intangible assets subject to amortization for the fiscal year ending March 31, 2013 and thereafter is expected to be immaterial. As of March 31, 2012,
$0.1 million of other identifiable intangible assets had not been placed in service and therefore no amortization had been recognized. During the fiscal year ended March 31, 2011, we
removed approximately $3.5 million of fully amortized other identifiable intangible assets that were no longer in use.

NOTE 6PROPERTY AND EQUIPMENT

The components of property and equipment as of March 31 were as follows (in thousands):

2012

2011

Furniture and fixtures

$

421

$

698

Computers, equipment and servers

9,873

9,194

Leasehold and tenant improvements

3,915

4,156

Property and equipment, at cost

14,209

14,048

Less accumulated depreciation

(5,590

)

(6,830

)

Total property and equipment, net

$

8,619

$

7,218

Depreciation
expense was approximately $2.5 million and $2.3 million for the fiscal years ended March 31, 2012 and 2011, respectively. During the fiscal years ended
March 31, 2012 and 2011, we retired approximately $3.5 million and $2.5 million, respectively, of fully depreciated property and equipment.

During
the fiscal year ended March 31, 2011, we acquired approximately $1.7 million of new storage equipment. We paid approximately $1.3 million in cash for the new
equipment. Additionally, we

exchanged
certain equipment with a net book value of approximately $0.4 million. No gain or loss was recorded in connection with the transaction.

NOTE 7CONTENT AND DISTRIBUTION RIGHTS

The Transactional TV and Direct-to-Consumer segments' content and distribution rights consist of content licensing agreements and original productions. We
capitalize the costs associated with the licenses, certain editing costs and content. These costs are amortized on a straight-line basis, typically over 5 years. The components of
content and distribution rights as of March 31 were as follows (in thousands):

2012

2011

In release

$

21,825

$

20,281

Acquired, not yet released

349

1,013

In production

174

19

Content and distribution rights, at cost

22,348

21,313

Accumulated amortization

(10,556

)

(9,770

)

Total content and distribution rights, net

$

11,792

$

11,543

Amortization
expense during the fiscal years ended March 31, 2012 and 2011 was approximately $4.3 million and $4.1 million, respectively. During each of the fiscal
years ended March 31, 2012 and 2011, we retired $3.5 million of fully amortized content and distribution rights. Additionally, we recorded an impairment expense of $0.2 million
during the fiscal year ended March 31, 2011 because certain content and distribution rights no longer met our quality standards for distribution. We had no material impairments of content and
distribution rights during the fiscal year ended March 31, 2012.

NOTE 8FILM COSTS

The components of film costs, which are primarily direct-to-television, were as follows as of March 31 (in thousands):

2012

2011

In release

$

18,846

$

18,474

Completed, not yet released

681

500

In production

2,033

174

Film costs, at cost

21,560

19,148

Accumulated amortization

(17,576

)

(16,569

)

Total film costs, net

$

3,984

$

2,579

Amortization
expense for the fiscal years ended March 31, 2012 and 2011 was approximately $1.0 million and $2.1 million, respectively. We expect to amortize
approximately $2.4 million in capitalized film costs during the fiscal year ending March 31, 2013. Additionally, we expect to amortize substantially all unamortized film costs for
released films by March 31, 2015.

During
fiscal year 2012, we recorded impairment expenses of approximately $0.2 million associated with certain owned content films. In connection with our quarterly film
performance analysis, we adjusted downward the expected performance for certain films based on a continuation of underperformance as

compared
to expectations. As a result, we performed assessments on the films and determined the fair value of the films was less than the unamortized cost of the films, and the differences were
recorded as impairment charges. This expense was recorded in the charge for asset impairments other than goodwill line item in the consolidated statements of operations. The fair value of the films
was estimated by discounting the film's projected cash flow by the weighted average cost of capital.

During
the second and fourth quarters of fiscal year 2011, we recorded impairment expenses of approximately $0.6 million and $1.6 million, respectively, associated with
certain owned content films. During our second quarter film performance analysis, we adjusted downward the expected performance for certain films based on a continuation of underperformance as
compared to expectations. During our fourth quarter film performance analysis, we adjusted downward the expected results for certain films based on a continued trend of lower than expected film
performance and based on the departure of the segment's Co-Presidents. As a result, we performed further assessments on the films and determined the fair value of the films was less than
the unamortized cost of the films, and the differences were recorded as impairment charges. This expense was recorded in the charge for asset impairments other than goodwill line item in the
consolidated statements of operations. The fair value of the films was estimated by discounting the film's projected cash flow by the weighted average cost of capital.

NOTE 9INCOME TAXES

The components of the continuing operations income tax benefit for the fiscal years ended March 31 were as follows (in thousands):

A reconciliation of the expected income tax benefit computed using the federal statutory income tax rate to our recorded continuing operations income tax benefit is as follows for the
fiscal years ended March 31 (in thousands):

2012

2011

Income tax computed at federal statutory tax rate of 34% and 35% for the fiscal years ended March 31, 2012 and 2011, respectively

$

1,627

$

388

State taxes, net of federal benefit

45

10

Reversal of uncertain tax positions

118

193

Federal research and development tax credits

(63

)

63

Meals and entertainment

(85

)

(88

)

Share-based compensation

(53

)

(59

)

Return to provision adjustment

(123

)

(142

)

Change in valuation allowance

(94

)

(14

)

Change in statutory rate

(105

)

(15

)

Other permanent differences, net

(35

)

13

Total

$

1,232

$

349

Significant
components of our deferred tax assets and liabilities as of March 31 were as follows (in thousands):

2012

2011

(Revised)

Deferred tax assets:

Net operating losses

$

1,903

$

650

Nonconsolidated entities

109



Goodwill

210



Allowance for unrecoverable and doubtful accounts

1,010

931

Share-based compensation

793

988

Accruals

260

180

Other identifiable intangible assets

754

958

Tax credits

558

257

Other

8

87

Gross deferred tax assets

5,605

4,051

Valuation allowance

(109

)

(14

)

Total deferred tax assets

5,496

4,037

Deferred tax liabilities:

Depreciation

(1,918

)

(687

)

Goodwill



(1,000

)

Film library

(7

)

(103

)

Total deferred tax liabilities

(1,925

)

(1,790

)

Net deferred tax assets

$

3,571

$

2,247

Deferred
tax assets and liabilities reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the
amounts used for

income
tax purposes. We establish valuation allowances when, based on an evaluation of objective evidence, there is a likelihood that some portion or all of the deferred tax assets will not be
realized. As of March 31, 2012, we determined that it was more likely than not that deferred tax assets associated with capital losses would not be realized and recorded a valuation allowance
of $0.1 million for the full capital loss deferred tax asset. We had no other valuation allowances as of March 31, 2012.

We
have domestic net operating losses (NOLs) of approximately $5.4 million for federal income tax purposes. Approximately $3.7 million of the NOLs resulted from the
estimated tax loss we incurred in fiscal year 2012, and we may file amended returns for prior fiscal years in order to utilize that portion of the NOLs. The remaining $1.7 million of NOLs has
an annual deductibility limitation of $0.2 million and can be utilized through 2019 in accordance with Internal Revenue Code Section 382. Internal Revenue Code Section 382 places
a limitation on the utilization of net operating loss carryforwards when an ownership change, as defined in the tax law, occurs. Generally, an ownership change occurs when there is a greater than 50%
change in ownership. When a change occurs, the actual utilization of net operating loss carryforwards is limited annually to a percentage of our fair market value at the time of such change. We also
have tax credits associated with certain foreign tax withholdings of approximately $0.6 million. The deduction of these tax credits was limited during the fiscal year ended March 31,
2012 because we did not incur a U.S. tax liability during the fiscal year. We expect to utilize the tax credits from foreign tax withholdings through the filing of amended returns for fiscal years
prior to March 31, 2012 and through our filings of future returns.

Uncertain Tax Positions

We account for uncertain tax positions using a two-step approach. The first step is to evaluate the tax position for
recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or
litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon effective settlement. During the fiscal year ended
March 31, 2012, the statute of limitations expired on approximately $0.1 million of uncertain tax positions resulting in a decline in the uncertain tax position balance as reflected in
long-term taxes payable and a reduction in income tax expense. The reduction in the uncertain tax position balance also resulted in the reversal of approximately $14,000 in interest
expense. As of March 31, 2012, we had no remaining unrecognized tax benefits.

The
aggregate change in the uncertain tax position balance as reflected in long-term taxes payable during the fiscal year ended March 31, 2012 was as follows (in
thousands):

Beginning balance as of April 1, 2011

$

118

Reversal of prior period tax position from expiration of statute of limitations

(118

)

Ending balance as of March 31, 2012

$



During
the fiscal year ended March 31, 2011, the statute of limitations expired on approximately $0.2 million of uncertain tax positions resulting in a decline in the
uncertain tax position balance as reflected in long-term taxes payable and a reduction in income tax expense. The reduction in the uncertain tax position balance also resulted in the
reversal of approximately $35,000 in interest expense.

We file U.S. federal, state and foreign income tax returns. During the fiscal year ended March 31, 2012, the Internal
Revenue Service initiated an audit of our fiscal year 2010 tax returns. We cannot currently make an estimation of the possible outcome from the audit. With few exceptions, we are no longer subject to
examination of our federal income tax returns for the years prior to the fiscal year ended March 31, 2009, and we are no longer subject to examination of our state income tax returns for years
prior to the fiscal year ended March 31, 2008.

NOTE 10STOCK REPURCHASE

Common stock that we repurchase is returned to authorized but unissued shares of common stock in accordance with Colorado law.

In
August 2009, we announced that our board of directors adopted a stock repurchase program. Under the program, we could repurchase with available cash and cash from operations up to
1.0 million shares of our outstanding common stock, from time to time through open market or privately negotiated transactions, as market and business conditions permitted. The program was
scheduled to expire in March 2012. During the fiscal years ended March 31, 2011 and 2010, we repurchased approximately 0.2 million shares and 0.1 million shares of common stock,
respectively, under the stock repurchase plan for total purchase prices of approximately $0.4 million and $0.1 million, respectively. During the three month period ended
September 30, 2011, we substantially completed the stock repurchase program by acquiring approximately 0.7 million shares of common stock for a total purchase price of approximately
$0.9 million.

In
October 2011, our board of directors authorized an extension of the August 2009 stock repurchase program. The extension allowed for an additional repurchase of up to
0.8 million shares of common stock, in an amount not to exceed in aggregate $1.0 million, exclusive of any fees, commissions or other expenses related to such repurchases. The program
was scheduled to expire on March 31, 2014, if not completed sooner. During the three month period ended December 31, 2011, we repurchased approximately 0.2 million shares of
common stock under the extended stock repurchase program for a total purchase price of approximately $0.3 million. In December 2011, the board of directors also authorized an individual
repurchase of approximately 2.1 million shares of common stock through an open market transaction. The total purchase price of the shares was approximately $2.4 million, and the stock
repurchase program that was extended in October 2011 was concluded as a result of the transaction.

NOTE 11SEGMENT AND GEOGRAPHIC INFORMATION

Operating segments are defined as components of an enterprise for which separate financial information is available and regularly reviewed by our chief operating decision maker. We have
the following reportable operating segments:

Film Productionproduces and distributes mainstream films and erotic features. These films are distributed on
U.S. and international premium channels, PPV channels and VOD systems across a range of cable and satellite distribution platforms. The Film Production segment also

distributes
a full range of independently produced motion pictures to markets around the world. Additionally, this segment periodically provides producer-for-hire services to
major Hollywood studios.



Direct-to-Consumeraggregates and resells adult content via the internet. The
Direct-to-Consumer segment sells content to subscribers primarily through its consumer websites.



Corporate Administrationincludes all costs associated with the operation of the public holding company, New
Frontier Media, Inc., that are not directly allocable to the Transactional TV, Film Production, or Direct-to-Consumer segments. These costs include, but are not limited
to, legal expenses, accounting expenses, human resource department costs, insurance expenses, registration and filing fees with NASDAQ, executive employee costs, and costs associated with the public
company filings and shareholder communications.

The
accounting policies of the reportable segments are described in the significant accounting policies. The reportable segments are distinct business units, separately managed with
different distribution channels. The selected operating results of our segments during the fiscal years ended March 31 were as follows (in thousands):

The
total net identifiable asset balance by operating segment as of March 31 was as follows (in thousands):

2012

2011

(Revised)

Net identifiable assets

Transactional TV

$

27,642

$

29,750

Film Production

8,839

9,125

Direct-to-Consumer

222

604

Corporate Administration

18,048

22,575

Total assets

$

54,751

$

62,054

As
of March 31, 2012, approximately $0.1 million in assets were located in Europe. All other assets were located in the U.S.

Net
revenue, classified by geographic billing location of the customer, during the fiscal years ended March 31 was as follows (in thousands):

2012

2011

United States

$

32,123

$

40,594

International:

Europe, Middle East and Africa

1,987

2,017

Latin America

3,454

2,865

Canada

2,877

2,869

Asia

337

364

Total international

8,655

8,115

Total

$

40,778

$

48,709

NOTE 12MAJOR CUSTOMERS

Our major customers (customers with revenue equal to or in excess of 10% of consolidated net revenue during any one of the presented periods) are Comcast Corporation (Comcast), Time
Warner, Inc. (Time Warner), DIRECTV, Inc. (DirecTV) and DISH Network Corporation (DISH). Revenue from these customers is included in the Transactional TV and Film Production segments.
Net revenue from these customers as a percentage of total net revenue for the fiscal years ended March 31 was as follows:

The
outstanding accounts receivable balances due from our major customers as of March 31 were as follows (in thousands):

2012

2011

Comcast

$

1,264

$

1,231

Time Warner

292

448

DirecTV

822

634

DISH

562

704

The
loss of any of our major customers would have a material adverse effect on our results of operations and financial condition.

NOTE 13COMMITMENTS AND CONTINGENCIES

The following table reflects our contractual cash obligations as of March 31, 2012 for each of the time periods specified (in thousands):

Year Ending March 31,

Operating
Leases

Vendor
Obligations

Total

2013

$

1,960

$

4,233

$

6,193

2014

1,936

2,812

4,748

2015

1,761

1,021

2,782

2016

1,614

1,000

2,614

2017

1,121

1,000

2,121

Thereafter

5,486

500

5,986

Total minimum payments

$

13,878

$

10,566

$

24,444

For
the purposes of this table, contractual obligations are defined as agreements that are enforceable and legally binding and that specify all significant terms, such as fixed or
minimum services to be purchased and the approximate timing of the transaction. Obligations to acquire specified quantities of movie license rights that are subject to the delivery of the related
movies are included in vendor obligations because we estimate that the movies will be delivered in the specified time periods based on historical experience with the movie studios.

During
the first quarter of fiscal year 2013, we entered into an operating lease and vendor obligations through April 2012 and May 2013, respectively. The impact of the
operating lease was an immaterial increase to our commitments under the obligations for the fiscal year ending March 31, 2013. The impact of the vendor obligations was an increase to our
commitments under the obligations of approximately $1.4 million and $0.1 million for the fiscal years ending March 31, 2013 and 2014, respectively.

Operating Lease Obligations

We maintain non-cancelable leases for office space and equipment under various operating leases. The leases for office
space expire through January 2022 and contain annual escalation clauses. Our Transactional TV segment has entered into direct lease agreements that expire through October 2013 for the use of
transponders to broadcast its channels on satellites. As the lessee of transponders under the transponder agreements, we are subject to arbitrary refusal of service by the service provider if that

service
provider determines that the content being transmitted by us is harmful to the service provider's name or business. We had no equipment under capital lease as of March 31, 2012 or 2011.

Rent
expense for the fiscal years ended March 31, 2012 and 2011 was approximately $2.7 million and $2.2 million, respectively, which includes transponder expenses.

Vendor Obligations

From time to time, we enter into arrangements with movie studios to acquire license rights for a fixed and/or minimum quantity of
movies over various purchase periods as defined by the agreements. Additionally, we are party to certain uplinking, transport and marketing services that contractually obligate us to receive services
over specified terms as per these arrangements. We are also obligated to make future payments associated with patent rights. These contractual obligations are reflected in the above table as vendor
obligations.

Employment Contracts

We employ executives and certain other key employees under non-cancelable employment contracts. The employment contracts in
effect as of March 31, 2012 expire through March 31, 2015. Commitments under these obligations as of March 31, 2012 were as follows (in thousands):

Year Ending March 31,

2013

$

3,336

2014

2,366

2015

610

Total obligation under employment contracts

$

6,312

During
the first quarter of fiscal year 2013, we entered into and extended non-cancellable employment contracts with certain key employees. These employment contracts expire
through April 4, 2014. The impact of the execution and extension of the employment contracts was an increase in our commitments under the obligations of approximately $1.7 million and
$0.4 million during the fiscal years ending March 31, 2013 and 2014, respectively. Additionally, we terminated an employment contract of a key employee in May 2012, which resulted in a
decrease to our commitments under the obligations of $0.2 million for each of the fiscal years ending March 31, 2013 and 2014.

Guarantees

Our Film Production segment completed producer-for-hire services during the fiscal year ended March 31,
2011 related to a movie production in the state of Georgia. Based on the location of the production and other factors, we received certain transferable production tax credits in the state of Georgia.
Subsequent to the completion of the production, we entered into an agreement to sell the tax credits for a net purchase price of approximately $0.8 million. If the tax credits are recaptured,
forfeited, recovered or otherwise become invalid within a four year period subsequent to our sale of the tax credits, we have agreed to reimburse the buyer for the value of the invalid tax credits as
well as any interest, penalties or other fees incurred in connection with the loss of the tax credits. We believe the tax credits are valid and do not expect that we will be required to reimburse the
buyer.

We have agreements whereby we indemnify officers and directors for certain events or occurrences while the officer or director is, or
was, serving in such capacity at our request. The term of the indemnification period is for the officer's or director's lifetime. The maximum potential amount of future payments we could be required
to make under these indemnification agreements is unlimited; however, we have a director and officer insurance policy that limits exposure and we believe that this policy would enable us to recover a
portion, if not all, of any future indemnification payments. As a result of our insurance policy coverage, we believe that our estimated exposure on these indemnification agreements is minimal.

We
enter into standard indemnification agreements in the ordinary course of business. Pursuant to these agreements, we indemnify, holds harmless, and agree to reimburse the indemnified
party for losses suffered or incurred by the indemnified party in connection with any claim by any third party, including customers, with respect to our products or services, including, but not
limited to, alleged negligence, breach of contract, or infringement of a patent, copyright or other intellectual property right. The term is any time after execution of the agreement. The maximum
potential amount of future payments we could be required to make under these indemnification agreements is unlimited. We have never incurred costs to defend lawsuits or settle claims related to these
indemnification agreements. As a result, we believe that our estimated exposure on these agreements is minimal.

Legal Proceedings

State Court Lawsuit

On March 9, 2012, we received an unsolicited conditional acquisition offer from Longkloof Limited, one of our existing
shareholders (Longkloof), for $1.35 per share in cash, subject to certain conditions.

On
March 23, 2012, Mr. Elwood M. White filed a class action complaint in the Boulder County, Colorado District Court for the 20th Judicial District of the State of
Colorado, purportedly on behalf of our public shareholders, against us and our board of directors. The complaint alleges that the individual members of our board of directors have breached their
fiduciary duties owed to our shareholders in connection with their receipt of Longkloof's offer on March 9, 2012 to acquire the outstanding shares of common stock of the Company not already
owned by Longkloof for $1.35 per share.

Mr. White's
complaint seeks, among other things, an order allowing the action to be maintained as a class action and certifying Mr. White as the class representative and
his counsel as class counsel. It also seeks to enjoin our board of directors to exercise their fiduciary duties to obtain a transaction that is in the best interests of our shareholders, a declaration
that our board of directors has violated their fiduciary duties, an order directing us and our board of directors to account to the class for any damages sustained because of the alleged wrongs, and
an award to Mr. White of the costs of the action, including Mr. White's attorneys' and experts' fees.

We
believe Mr. White's claim is without merit and we intend to vigorously defend against this matter.

On April 26, 2012, Longkloof submitted to us a notice indicating its intention to nominate four individuals for election to our
board of directors at our 2012 annual meeting of shareholders.

In
connection with Longkloof's intent to nominate individuals for election to our board of directors, on May 31, 2012, we filed a complaint in the United States District Court for
the District of Colorado (U.S. District Court) against a publicly-traded South African conglomerate, Hosken Consolidated Investments Limited (Johannesburg Stock Exchange: HCI), its Executive Chairman,
Marcel Golding, Longkloof, Mile End Limited, Sabido Investments (Pty) Ltd., Adam Rothstein, Eric Doctorow, Mahomed Khalik Ismail Sheriff, Willem Deon Nel and Barbara Wall (the Defendants).

The
complaint alleged, among other things, that the Defendants violated Section 13(d) of the Exchange Act, when they failed to disclose that the Defendants were operating as a
"group" for the purposes of seeking control of our company, and the true nature, extent and intent of their "group," as required by Section 13(d) of the Exchange Act. The complaint also alleged
that, because of the Defendants' failure to disclose certain information related to those acting in concert with Longkloof as required by the advance notice provisions contained in our Amended and
Restated Bylaws (the Bylaws), the Defendants' notice of nominations of candidates for election to the our board of directors at the 2012 annual meeting of shareholders (the Notice) does not comply
with the Bylaws' advance notice provisions, and therefore, such nominations are invalid.

We
requested relief in the form of a declaratory judgment that the Defendants did not comply with the advance notice provisions of the Bylaws and therefore, the nominations presented by
the Defendants are invalid, and that the advance notice provisions of the Bylaws are valid and enforceable under Colorado law. Further, we requested relief in the form of injunctions enjoining the
Defendants (a) preliminarily and permanently, from violating Section 13(d) of the Exchange Act, and engaging in any further activities with regard to their shares of our common stock
until the Defendants have filed accurate disclosures under Section 13(d) of the Exchange Act, (b) preliminarily and permanently, from taking any actions contrary to or inconsistent with
our board of directors' denial of the validity of the Defendants' director nominations, and (c) from acquiring additional shares of our common stock until the Defendants have filed accurate
disclosures under Section 13(d) of the Exchange Act. We also requested an order that the Defendants divest themselves of any and all shares of our common stock that they may have unlawfully
acquired in violation of U.S. federal securities laws.

On
June 8, 2012, the Defendants filed an answer and counterclaim in U.S. District Court in response to our complaint filed on May 31, 2012 naming us and all of the
individuals currently serving on our board of directors as defendants (the Counterclaim Defendants). The counterclaim alleged, among other things, that our board of directors and/or its nominating
committee and Special Committee have
breached their fiduciary duties owed to our shareholders by (a) asserting that the Notice was defective, (b) failing to waive any technical defects in the Notice and (c) causing
us to file the May 31, 2012 complaint against the Defendants.

The
answer and counterclaim requested, among other things, (a) a dismissal of our complaint with prejudice, (b) a declaration that the Notice is valid and effective or, in
the alternative, an order that we and the individual members of our board of directors accept a corrected Notice, (c) an injunction enjoining us and our board of directors from taking any
action to interfere with the ability of our shareholders to vote for the Defendants' candidates for election to our board of directors at our 2012

annual
meeting of shareholders and (d) an award to Defendants of costs and disbursements of the action, including reasonable attorneys' fees.

On
June 20, 2012, the Defendants filed an amended answer and counterclaim, adding two new counterclaims. The additional counterclaims alleged that the Counterclaim Defendants
breached their contract with the Company's shareholders and that the individuals serving on the Special Committee tortiously interfered with the electoral rights of the Company's shareholders.

On
July 12, 2012, we entered into a settlement agreement with the Defendants (the Settlement Agreement). Under the terms of the Settlement Agreement, among other things, the
Defendants agreed to (a) terminate their proxy contest, (b) vote their shares of stock in our Company in favor of our board of directors nominees at our 2012 annual meeting of
shareholders as well as any other proposals recommended to shareholders by our board of directors at the meeting, and (c) withdraw their nominees for election to our board of directors. We
agreed, among other things, that if we do not engage in a sale, merger or similar change of control transaction by December 31, 2012, Longkloof will have the right to designate one person to
our board of directors. As part of the settlement agreement, all pending litigation in the U.S. District of Colorado between us and the Defendants will be dismissed by the companies without admission
of any wrongdoing by either party. In addition, the Defendants agreed to certain standstill restrictions through December 31, 2012.

We
intend to pursue any and all rights available to us and to vigorously defend all claims not dismissed pursuant to the Settlement Agreement with respect to the foregoing matters to the
full extent permitted under applicable law.

With
respect to the state and federal court lawsuits discussed above, based on our current knowledge, a reasonable estimate of the possible loss or range of loss cannot be made at this
time. Legal proceedings are subject to inherent uncertainties, and unfavorable rulings or other events could occur. Were unfavorable final outcomes to occur, there exists the possibility of a material
adverse impact on our financial position, results of operation, or cash flows.

Other Legal Proceedings

In the normal course of business, we are subject to various lawsuits and claims. We believ